Top Mistakes to Avoid When Making Gifts

A smart estate plan strategically avoids taxation whenever possible. If your estate exceeds the federal estate tax threshold (currently over $12 million), making gifts before your death, if done properly, could lower your federal estate value and avoid taxation.

Unfortunately, some gifts trigger IRS scrutiny—even if you are not trying to avoid the estate or gift tax. Here are the top mistakes to avoid when you are making gifts to others.

Don’t leave strings attached

Gifts must be given free and clear of any other obligations. Otherwise, they are not considered a legal gift. This can have tax and estate implications. For instance, the gift might be considered another type of legal entity, or remain a part of your estate, even after death. For large gifts, consider memorializing your intention to make a gift.

Don’t call a gift a loan

Some people get around gift taxes by calling them loans. The giver can “forgive” the repayments in amounts equal to the current gift tax exclusion amount. This method can be effective, but the IRS may check for nine differentiating factors, including whether there was a promissory note, collateral, or interest. Do not try this without an attorney’s assistance.

Don’t give gifts intended for another recipient

Finally, don’t make significant gifts to one person, knowing that they’ll give it to someone else. You cannot get around the gift tax exemption by giving the maximum gift to all of your relatives, with the intention that they’ll transfer it to someone else. The IRS will notice, and you will be on the hook for gift tax above the exemption threshold.

If you’re looking for savvy ways to avoid estate and gift tax, a lawyer’s advice will prove invaluable. A good lawyer will help you minimize tax liability while ensuring that your assets are protected and distributed appropriately.

When you need help from knowledgeable estate planning lawyers in Tampa, FL, reach out to BaumannKangas Estate Law today.