As you plan for the future, one question you may ask yourself is whether to gift assets during your lifetime or leave them to your loved ones after you pass. The decision has far-reaching implications for your family, your financial health, and your estate plan. A thoughtful gifting strategy can be a powerful way to help your heirs while ensuring you maintain control over your finances. This article explores the pros and cons of this approach with guidance from a Kerrville estate planning attorney.
The Benefits of Gifting While You’re Alive
Gifting during your lifetime allows you to see the positive impact of your generosity explains an article from Kiplinger, giving while living allows you to see how your legacy helps others, provides for greater control and has tax advantages.. Whether it’s helping a child buy their first home, paying for a grandchild’s education, or supporting a favorite cause, you can experience the joy and satisfaction of making a difference.
- Tax Benefits
Under current laws, you can gift up to $18,000 per individual ($36,000 for couples) annually without incurring federal gift taxes. This amount will increase to $19,000 in 2025. For more significant gifts, strategies such as funding 529 education plans or making direct payments for tuition or medical expenses can avoid gift tax implications altogether.
- Control Over Your Legacy
Gifting assets during your lifetime lets you decide how your wealth is used. This can include stipulations such as establishing a trust to provide financial support while ensuring accountability.
- Reduced Estate Taxes
Lifetime gifting may reduce the size of your estate, potentially lowering estate taxes upon your passing. However, this benefit is highly individualized and depends on current tax laws and your estate's value.
Considerations Before Gifting
While lifetime gifting has advantages, it’s essential to ensure it aligns with your financial and estate planning goals. Here are a few key considerations:
- Your Financial Stability
Ensure you have enough resources to support yourself throughout retirement. With people living longer than ever, unexpected medical or long-term care costs can quickly deplete your savings.
- Impact on the Recipient
A well-intentioned gift can sometimes have unintended consequences. For instance, gifting appreciated assets may result in a tax liability for the recipient when they sell the asset due to the lack of a "step-up in basis" that comes with inheritance.
- Family Dynamics
Consider how gifting now might affect relationships within your family. Transparency and clear communication can help avoid resentment or misunderstandings.
Smart Gifting Strategies
A Kerrville estate planning attorney can help you navigate the complexities of lifetime gifting. Here are some commonly used strategies:
- Intrafamily Loans: These can help a loved one purchase a home or start a business while keeping terms favorable and avoiding gift tax implications.
- 529 Plans: Contribute up to five years’ worth of the annual exclusion amount in one year to fund a child’s or grandchild’s education.
- Trusts: A spendthrift trust can provide financial support to a beneficiary while protecting assets from poor financial decisions or external threats.
Planning for Your Unique Needs
The decision to gift during your lifetime or leave an inheritance should always be part of a comprehensive estate plan. Working with an experienced Kerrville estate planning attorney, like Shawn McCammon, ensures your gifting strategy protects your interests, minimizes tax burdens, and reflects your values. Request a consultation with McCammon Law to get started.
