Estate planning has indeed “gotten a raise” this year in the form of an increased estate and gift tax exemption. There’s more to explore, though, in terms of your giving plan. At Geyer Law, we find annual gifts to be a highly useful estate planning tool for a broad range of clients.
The annual gift exclusion amount for 2021 remains the same as last year. Individuals are allowed to give $15,000 per donee, while couples are allowed to give double that amount to each recipient. Happily, the recipients do not owe any income tax on the gifts.
Even if you’re unlikely to ever have an estate worth anywhere near $11 million dollars, there’s a powerful case to be made for giving money to your loved ones while you’re still around, the Charles Schwab Center for Financial Research points out:
1. It’s easy to give annual gifts. Unless the gift is “split” between a couple, there is no need to file any tax forms (if you exceed the annual gift limit to any one person, you would need to let the IRS know about it by filing a gift tax return).
2. Both the present value and any potential future growth of the assets are removed from your taxable estate.
3. You’re allowed to give the annual exclusion amount to as many different people as you like!
4. Giving when your friends or relatives need help is more meaningful than waiting to pass on a larger amount after you’re gone.
If nothing else, recalling the events of 2020 puts the gifting spotlight on the need rather than on the tax break. Parents and grandparents want to help children and grandchildren who have lost jobs due to the pandemic, or whose businesses have been forced to close. Many families now have unexpected medical bills to pay. Charities are begging for support to help the hungry and the homeless. Financial support for many educational and arts institutions has eroded.
It’s encouraging to realize that in addition to the annual exclusion (the $15,000 gifts), the tax law provides for two other ways to make tax-exempt gifts:
- You may pay the medical bills for another individual (the amount is unlimited!).
- You may make direct payments for tuition expenses for another person (the amount is also unlimited).
Your 2021 estate planning may include making gifts that qualify for the annual gift and estate tax exclusion, but much smart gifting this year will be focused on the need!
– By Ronnie of the Rebecca W. Geyer & Associates blog team