Estate Planning: Gifting Strategies

When it comes to sharing your wealth, there may be no better time than the present. If you plan to help your children or grandchildren financially, the question of how and when to transfer wealth is one that you will have to deliberate. According to a 2019 Merrill Lynch retirement study, 65% of Americans age 55 and older believe it is better to distribute at least a portion of their estate while they are still alive. Have you considered making financial gifts to your heirs now instead of through your will?

Many people are finding it valuable to gift assets to their children and grandchildren while they are alive so they can see the results of their gifts. Your gift could help your child or grandchild pay off student loans, obtain an advanced degree, make a down payment on a house or start a business. Making gifts now can also help reduce or eliminate the estate taxes your heirs might be faced with later. Below are some gifting strategies to consider.

Gift Tax Annual Exclusion

For 2020, you can give up to $15,000 (or $30,000 per married couple) to any individiual of your choosing without triggering gift taxes. This amount does not erode any of the $11.58 million lifetime exemption each individual (or $23.16 million per married couple) can gift without incurring any estate taxes.

529 College Savings Plan Account Contributions

You can contribute up to five years’ worth of your annual gift exclusion, up to $75,000 for an individual ($150,000 if you are married), to a 529 account in a single year with no federal gift tax implications. 529 college savings plans offer the ability to save for college in a tax-advantaged manner. Earnings on contributions made to a 529 college savings plan grow federal income tax-deferred. If the withdrawals from these accounts are used for qualified education expenses, the earnings are federal income tax-free. In many cases, these withdrawals are state income tax-free as well.

Direct Gift

Tuition payments and medical expense payments are two other gifts that you can give to children or grandchildren that are not subject to the annual gift tax exclusion amount and that do not count against your lifetime exemption amount. Tuition payments must be made directly to a qualifying learning institution for the benefit of one of your children or grandchildren. Medical expense payments must be made directly to the medical institution, the care provider, or the company providing medical insurance for the benefit of your children or grandchildren.

When thinking about your legacy, wills and estate planning, it may make sense to consider making financial gifts during your lifetime. Making financial gifts to your heirs during your life, especially your children or grandchildren, can provide major assistance to them when they need it most.

If you have any concerns related to your specific situation, please do not hesitate to contact us.

Sources: RBC Wealth Management, Wells Fargo, Merrill Edge

*This article is provided for informational purposes only and should not be interpreted as investment advice.