Gifting and Estate Planning | White & Associates

 

Gifting and Estate Planning isn’t always top of mind. Estate planning is something you should think about long before retirement. There are several aspects to estate planning. Gifting is one of them. Gifts are subject to certain tax rules.

Gifting assets can be beneficial to your estate in several ways.

It can potentially:

  •         Reduce your taxable estate
  •         Help your heirs avoid the probate process
  •         Provide for your favorite charities
  •         See your heirs enjoy your gifts
  •         Move your assets (and tax obligations) to a loved one who is in a lower tax bracket

Gifting is Subject to Certain Tax Rules

Each person can gift up to $15,000 each year to as many people as you wish, free of any gift tax. So as a couple, you can gift up to $30,000 a year per recipient. Be sure to write two separate checks. By staying within these guidelines, the recipient won’t need to file an IRS 709 form.

Use caution to stay under these guidelines. If you give your child $15,000 and then in the same year give them $300 for Christmas, you will have exceeded the annual amount and an IRS 709 form must be filed.

Under federal tax laws, each person has an estate and gift lifetime exclusion amount of $10 million (indexed for inflation). Any amount greater than $15,000 per person or $30,000 per couple, annually, will reduce the lifetime exempted amount of $10 million (indexed for inflation).

You may give unlimited gifts to your spouse, free of the gift tax, as a marital deduction. You can also give unlimited gifts to a qualifying charity. Any tax resulting from a gift would be paid by you, not the recipient.

Minnesota Taxes

Minnesota technically doesn’t have a gift tax. However, for estates in Minnesota, there is a lookback period of three years. So, any gifts greater than the annual exclusion amount recorded on the IRS 709 form, made within three years of your death, will be added back onto your estate to determine if any Minnesota estate tax is due.

This lookback provision applies to:

  •         Minnesota residents who gift real estate or tangible property within Minnesota
  •         Minnesota residents who gift real estate or tangible property outside of Minnesota
  •         Non-residents who gift real estate or tangible property within Minnesota

Medicare’s Lookback Period

There is also a lookback period to qualify for Medicare. This is 60 months, or 5 years.

Documentation of Gifts

It is always important to document gifts. Without proper documentation, the IRS and the state may dispute that a gift was made. The estate can then be liable for the tax. This documentation can also prevent conflicts between family members. Include in writing the:

  •         Description of the gift (including serial and model numbers)
  •         Date given
  •         Fair market value of the gift
  •         Adjusted basis
  •         Notarized signatures of the gift giver and the recipient

When transferring the title of an asset such as a vehicle or property, the title will serve as documentation.

A Couple of Caveats

Only gift from excess assets so that you aren’t impoverished. Once you make the gift, you will have no access to it.

Also, you can’t retain any control over the gift, or the transfer will be considered incomplete. One nuance to this is to give appreciated property (such as farmland) to a qualified charitable organization. This allows you to receive an income stream from the donated asset (like an annuity). The remainder transfers to the charity when you die.

Seek Counsel from an Estate Attorney

White & Associates is experienced in estate planning. If you would like to know the best way to protect your assets for your heirs, contact us today.