Passing Wealth Wisely
Family gifting can be a powerful tool to both support your loved ones and reduce your taxable estate. And while you can simply utilize your annual gifting exemption of $18,000 per recipient, per year to gift tax-free, there are also other, more specific strategies that can facilitate effective, tax-free gifting as well:
Making qualified tuition and medical payments
Paying tuition or medical expenses directly to the school or doctor does not count toward your $18,000 annual gifting limit. However, reimbursing a loved one for these expenses does – so be sure the funds go directly from you to the institution.
Gifting to a trust
Transferring assets into a trust can move them out of your estate while allowing you to maintain control over the beneficiary’s access. However, the beneficiary must have a limited window to withdraw the gift or it’s not eligible for the annual exclusion.
Gifting investment assets
Gifting highly appreciating assets, like real estate or stock, removes future growth from your estate. The recipient then pays the tax on any gain at sale.
Gifting to a 529 Plan
Gifting to a 529 plan lets you contribute up to five times the annual gift limit in one year by using “super funding,” which allows those funds to start growing sooner.
The excess of gifts that surpass the annual gifting limit is applied against your lifetime exemption, which is $13.61 million in 2024 – and any gifts that exceed the lifetime limit are taxed at 40%. With the Tax Cuts and Jobs Act potentially expiring in 2026, this lifetime exemption amount could significantly decrease. This means that for some, it’s essential to consider using the lifetime exemption now.
To find out who this applies to and why, watch the below video, "Planning for a Timely Wealth Transfer Opportunity.
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