The Importance of Gift Planning

The Importance of Gift Planning

There is tremendous personal satisfaction in sharing your good fortune with those you love and supporting causes you care about. There are also tax advantages to doing just that. With federal estate taxes set at 40 percent for any amount in your estate that exceeds $5,340,000, it is crucial for wealthy individuals to explore ways of reducing estate taxes through gifting to individuals and charities.

Gifts to family members and others

When you make gifts to family members, it is crucial to do it right or else you stand to pay taxes on those amounts as well. Here are some of the basic principles that an estate planning attorney should consider when designing a gift plan that is particular to your circumstances and needs:

  • Annual exclusion gifts are amounts that are excluded from gift taxes — for 2014, the limit is $14,000 per person
  • The lifetime exemption is the total you may give to others in your lifetime without incurring gift tax ($5,340,000)
  • The marital deduction permits direct transfers to your spouse, during your lifetime or after your death, to be made without tax consequences — your spouse, however, must be a U.S. Citizen for this deduction to apply
  • Direct tuition or medical payments for the benefit of children, grandchildren and others are  unlimited — note, however, that your payment must be made directly to the school or hospital

Gift to charity

If you wish to give a gift to your community, the poor of third world countries, the environment, or to promote a particular issue that is important to you, there are philanthropic techniques that may enable you to leave a lasting legacy and benefit financially as well:

  • Converting assets into income.  Through a charitable remainder trust, gift annuity or pooled income fund,  you can gift cash or other assets (including certain assets that are non-income producing) to a charitable organization, receive a charitable deduction on your tax return(s), receive an income stream from the charity for your lifetime, and have whatever is remaining after your death go to a worthy cause of your choice
  • Lowering federal estate taxes through an outright bequest. Your attorney can draft provisions in your will or trust that leave a specific amount to a charity or the residue (balance) of your estate after expenses and other distributions — any amount to a qualified charity will be deductible for federal estate tax purposes

There are innumerable ways your attorney can help you set up a planned gift and to leave a lasting legacy when you are gone. To start, speak to a knowledgeable estate planning lawyer about how to use gift planning to your advantage.