Everything You Need to Know About Gifting
What is Gifting?
Gifting is a tool that can be used to gradually pass on your assets to family and friends before you die. Many people may be wary of gifting because they want to maintain control over their assets as long as they are alive, but gifting can come with several benefits. By creating a strong gifting strategy, you can feel comfortable giving away your assets without worrying about unexpected consequences. Here’s everything you need to know about gifting in a nutshell.
Aspects of Gifting
Gifting refers to the act of granting a part of your estate to your heirs while you are still alive. You can gift money, property, or other assets, and it is considered a gift when you don’t receive the same value back from the person you’ve given it to. You are able to gift as much as you want, but gifting a limited amount every year can avoid paying the gift tax.
Benefits of Gifting
Avoiding taxes is probably the main reason people choose to gift in small increments each year. Other benefits include providing medical assistance to a family member in need or paying for a loved one’s tuition. Gifting can help you pass on a family business to your children or provide them with a solid financial foundation for purchases in the future, such as a house.
The Gift Tax
The gift tax is a federal tax that must be paid by you based on the value of your gift to an heir. Some gifts, such as money for tuition or medical purposes, are not taxable. The same goes for gifts made to a spouse — you can gift as much as you want to a spouse without limit. For all other gifts, you must pay a gift tax on any value that goes over the annual exclusion rate. If the rate for the current year is $15,000, you are free to gift someone up to that amount without paying taxes. Anything that goes over that amount can be taxed. The tax applies to each heir individually, so you can gift up to the designated limit amount for each person.
You shouldn’t hesitate to make a gifting strategy for your estate if you feel your heirs can handle it. By providing financial wellbeing for them before you die, you get the added benefit of seeing how they use the money. An estate planning lawyer from a firm like Yee Law Group, PC can help you out with your gift strategy.