The majority of clients that Beck & Lenox Estate Planning & Elder Law, LLC, works with are focused on creating estate plans that distribute their assets after death. For wealthier Americans, giving away cash now can help you reduce or even avoid estate taxes when you die. You might ask, “Why should I give my money away now? Kiplinger’s recent article entitled “Give Cash Now, Cut Your Estate Tax Later.” helps answer that question.
Any gift may be subject to the federal gift tax, but you can give up to $16,000 per person during the year without having to file a gift tax return. If you are married, your spouse can also give $16,000 to the same people, upping the annual tax-free gift up to $32,000 per person.
Whatever you give away this year, up to the $16,000-per-recipient limit, will not be counted for estate tax purposes when you die.
If the current value of your estate is above the federal estate tax exclusion amount ($12.06 million for 2022), giving away money now could drop the value below the exclusion amount. The result would be no federal estate tax when you pass away.
There could also be state estate taxes to worry about. A dozen states and the District of Columbia have their own estate tax. Missouri does not. Each currently has an exclusion amount that is far below the current federal standard (like just $1 million in Massachusetts and Oregon).
What happens if you are feeling extra generous and want to give more than $16,000 (or $32,000 per couple) to your fantastic 30-year-old niece this year?
You will be required to file a gift tax return (IRS Form 709), and the amount over $16,000 is potentially a taxable gift.
However, you can still avoid gift and estate taxes, if the total amount of taxable gifts so far over your lifetime is less than $12.06 million.
Therefore, if you are thinking of dropping a very large amount of cash in the hands of your niece (or whomever), it does not necessarily mean you will have to pay taxes on the gift.
For strategies about gift giving, speak with an experienced estate planning attorney like Rudy, Jay, or Caroline of Beck & Lenox.
Reference: Kiplinger (Dec. 2, 2021) “Give Cash Now, Cut Your Estate Tax Later”