Tax-favored gift exemptions that give back — in any administration

With a president-elect Joe Biden heading to the White House, estate and gift tax exemptions could be on the chopping block next year. Even if nothing happens, these exemptions are slated to be halved after 2025.

The upshot: Wealthy clients wishing to make big gifts can save taxes by using the generous exemptions now.

The gift tax is only assessed on the amount of the gift received, but the estate tax is based on the full inheritance so even the funds used to pay the estate tax are themselves taxed.

For 2020, the estate and gift exemption is $11,580,000 per person ($23,160,000 per couple). The exemption can and should be used for lifetime gifts for wealthier clients who are more likely to be subject to a future estate tax.

Gifting saves taxes as opposed to leaving the same funds to beneficiaries at death.

Annual exclusion gifts do not even have to be reported and can be made to an unlimited number of people.

Plus, once the funds are gifted, the funds are not only removed from the estate, but so is any future income those funds might have earned or appreciation that could be subject to a larger estate tax later on. In addition, the gifts are not taxable to the recipients.

See: https://www.financial-planning.com/news/tax-favored-gifts-exemptions-that-give-back-in-any-administration

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