By Jeremy A. Wechsler, Esq.
Investment Advisor Representative
[email protected]
Gifting is one of the most powerful, yet most misunderstood tools in estate and tax planning. In this article, when I mention Gifting, I don’t mean birthday gifts or casual gifts—rather, I mean legacy planning and wealth transfer planning. Done right, you can reduce future taxes, move your assets efficiently, and create a “living legacy” by helping the people you care about while you’re still around.
There are two main buckets for gifting: Annual Gifts and Lifetime Gifts.
- Annual Gifts: You can currently give $19,000 per person, per year without filing a gift tax return. You can gift that amount to as many people as you want. These gifts do not count toward your lifetime gift bucket. (This number is indexed for inflation, so it tends to creep up over time.)
- Lifetime Gifts: Right now, you can give away roughly $15 million per person over your lifetime (or at death) before federal estate/gift tax kicks in. Remember that you have your annual gift exclusion, which does not count towards the lifetime gift bucket.
In addition, a couple of special rules:
- Education & Medical: You can pay someone’s tuition or medical bills directly—unlimited amounts—as long as the payment goes straight to the provider.
- 529 Plans: You can “superfund” a 529 by contributing up to 5 years’ worth of annual gifts at once. That’s a big lever if college funding is part of your plan.
A few important points on gifting:
- Gifting highly appreciated assets: This is a big one. If you gift appreciated stock, the recipient inherits your cost basis. If they inherit it at death, they get a step-up in basis. That can mean zero capital gains tax at the time of your passing. Huge difference.
- Medicaid lookback: Gifts can create problems if long-term care planning is in play. There’s a 5-year lookback and gifting must be done carefully based on your individual circumstances.
- Loss of control: Once you gift it, it’s gone. That includes exposure to your recipient’s creditors, divorces, etc. Gifts cannot be conditional, and gifts into trusts are very limited (and you have to give the recipient a right to take the gift out of the trust).
The bottom line is that you have a lot of gifting power under current law—but the rules can change, and the strategy matters more than the act itself. Before making major gifts, it is important to consult with your financial advisor, and perhaps CPA and attorney, depending on the complexity and amount of the gifting.
Feel free to get in touch with me directly if you have any questions on gifting, and I’ll be happy to point you in the right direction.