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Gifting with Warm Hands While Trimming Estate Tax Costs


Gifting with Warm Hands While Trimming Estate Tax Costs

If the prospect of paying more than 40% of the value of your assets in estate taxes disturbs you, remember that’s only for those who are worth more than $5.49 million for individuals. If this describes you, there are many strategies available to cut that tax burden.

A recent article in US News, “A Charitable Way to Cut Your Estate Tax Obligation While You're Still Alive,” reports on some of the more popular strategies that are used by wealthy people to share their good fortune while they are still alive and, at the same time, minimize estate taxes.

One important note: strategizing to minimize your tax bill should begin sooner rather than later.

If you die with fewer than $5.49 million in assets in 2017, there will be no estate tax. Larger estates are exempt from tax on the first $5.49 million (doubled to $10.98 million for couples). The threshold amount increases annually with inflation. It’s estimated that just under 5,200 estates will owe federal estate taxes in 2017. That’s less than 0.2% of the people who die. There are also 15 states that have their own estate taxes, with six others (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) which also have an inheritance tax. These taxes can be anywhere from 0.8 to 20%. Some states have smaller exemptions than the federal limits, so smaller estates may be taxed.

An effective strategy for lowering the estate tax is giving money to your heirs, while you’re still alive. The federal laws have several ways to do that, including outright gifts of cash. You can also give unlimited gifts to charities while you’re still alive and take whatever tax deductions those donations generate. There’s no limit on what you can give to charity, but remember to make retain sufficient assets to live comfortably for the rest of your life.

The best strategy for avoiding or reducing estate taxes will be different for each individual. Therefore, the counsel of an experienced estate planning attorney is critical. There are trusts that frequently can cut estate taxes. In addition, consider these easy ways to give money to your heirs tax-free while you’re still alive and also reduce or eliminate your estate tax obligations.

  • Give generously. Federal law allows you to give any number of people $14,000 a year with no tax consequences to you or to them. Each spouse can give this amount annually. If you give larger gifts, you may owe gift taxes, but you can also use a unified credit against the $5.49 million estate tax exemption. Gifts can be stock, real estate, collectibles or other assets.
  • Pay medical bills. You can pay an unlimited amount of medical bills for other people. However, these payments must be sent directly to the medical facility.
  • Pay tuition. It is also possible to pay private school or college tuition for children, grandchildren or another with no limit. These payments must go directly to the school.
  • Contribute to a 529 college fund. Parents, grandparents, aunts, uncles, or friends can contribute up to $14,000 a year to a 529 college fund. You could also contribute $70,000 per person upfront, but you can’t give any more gifts to that recipient in five years.
  • Start a foundation. This could benefit charities of your choice and provides many tax benefits, including the ability to cut your estate tax liability.
  • Transfer vacation homes to a QPRT. Here’s a way to keep the lake house or mountain retreat in the family. Don’t transfer it to your heirs outright, but transfer the property into a Qualified Personal Residence Trust or QPRT. You’ll still be able to use the property for as long as the trust specifies, and if you outlive the trust, then you’ll just need to pay rent for the right to stay there. Enjoy the property and know that your family will enjoy it for generations to come.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

  • My practice is exclusively estate planning and probate,
  • I have prepared numerous estate plans in 16 years of practice,
  • I have administered estates and trusts through Probate all over Florida,
  • I am a Certified Financial Planner Professional™, and
  • I am here for YOU today and there for your FAMILY tomorrow.

Reference: US News (March 3, 2017) “A Charitable Way to Cut Your Estate Tax Obligation While You're Still Alive”

Why would we recommend D.T.F.? Several Reasons: Your ability to explain complex estate problems, clearly and patiently; your total lack of arrogance and pretense; a strong feeling that you are motivated by what you perceive is best for your client, rather than what would generate the largest legal fees; finally, and importantly, you are a lovely guy. A.C.

Two words cannot sum up the entire process of creating my “trust.” I enjoyed your attention to detail, your patience of explaining terms and conditions until I understood, also giving me copies to read and understand. Thank you for your suggestions on what was best for “me” but still allowing me to make my choice. Most of all, thank you for thinking of “me.” Wells Fargo said “you were the best” I cannot deny that. Again thank you very much for everything. Anna is an asset or a compliment to the firm. She is warm and very caring. It was great doing business. Thank you.