While many people would prefer to wait until after death to give an inheritance to their heirs, others might prefer to give while they are still alive to see the benefits of their gifts. There are ways to give money now and avoid any tax consequences.
Traditionally, wealth is transferred from one generation to the next through inheritances. However, if an elder family member has more money than he or she needs and younger family members are in need, then it is often preferable to transfer the wealth while the elder person is still alive. In fact, that affords the older generation an opportunity to witness the impact of their generosity.
When it comes to giving methods, there are many ways to skin the cat. This was the subject of a recent article in the Columbus Dispatch, "Guide to Life: Pros and cons of leaving inheritances to relatives." Nevertheless, some of those giving methods are more tax savvy than others.
The article mentions three such ways:
- Cash – A single person can give an individual $14,000 a year without tax consequences for the person receiving the gift. A married couple can give $28,000. This amount can be given to as many people as desired so long as no one individual is given more than the limit by the person giving the gift. Moreover, the giver must be sure not to have given more than his or her lifetime limit on "taxable" gifts (i.e., gifts made in excess of the annual gift exemption). That number is currently $5.43 million for a single person and $10.86 million for a married couple.
- Student Loans – When you pay off a loved one's student loan debt, that does not count against the $14,000 annual limit on gifting. Caveat: This only works if the money is given directly to the educational institution.
- College Savings – Money invested in a 529 college savings plan accumulates tax free and can be withdrawn tax free for qualified expenses.
These are just a few of the ways to make tax savvy gifts. Your estate planning attorney can help you with other techniques to benefit your family and favorite charities. You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning. However, proper estate planning is not a do-it-yourself project. Why not call us for a complimentary consultation at 757-259-0707.
Reference: Columbus Dispatch (October 16, 2015) "Guide to Life: Pros and cons of leaving inheritances to relatives"