Year-End Gifting

Towards the end of the year, some families consider making financial gifts to others as part of their year-end tax planning. As part of your estate plan, you may consider sharing your financial success with your children, grandchildren, or other loved ones before your death.

First, let’s review gifts that aren’t taxable.

• Gifts that are not more than the annual exclusion for the calendar year (more on this below).
• Tuition or medical expenses you pay for someone (if paid directly to the educational or
  medical institution).
• Gifts to a spouse (if they are a US citizen).
• Gifts to a political organization.
• Gifts to qualifying charities are deductible from the value of the gift(s) made.

In 2022 the annual exclusion amount is $16,000, and in 2023 it will be $17,000. This means any donor may gift a recipient up to the annual exclusion amount without reporting the gift on a gift tax return.

Any gifts over the annual exclusion amount must be reported on a gift tax return. In 2022, the lifetime gift exemption is $12.06 million, meaning you can gift up to $12.06 million without owing tax on the transfers (not a problem for most Americans).

However, in the past when the exemption amount was much lower (for example $1 million), some clients have utilized annual exclusion gifts as a way to “spend down” their estate and transfer assets to beneficiaries during their lifetime in order to avoid hefty estate taxes after death.

More recently with the exemption amount so high, we see annual exclusion gifts in connection with gifts made by a senior generation who want to assist children and/or grandchildren with. major life events such as getting married, putting a down payment on a house, or welcoming a new child.

Some clients who realize their financial assets will far exceed their life expectancy want the enjoyment of seeing their children or grandchildren to benefit from a small portion of what they will one day receive as a beneficiary of an estate.

Feel free to call our office if you’d like to discuss whether year-end gifting is right for your family and estate plan.