If you think that your estate might owe estate tax, one way to avoid or reduce the tax is to give away property during your life. For deaths in 2016, you can leave or give away up to $5.45 million without owing any federal tax. This amount goes up every year to adjust for inflation. Married couples can leave up to twice that amount without paying federal estate tax.
In 2016, you can make an unlimited number of $14,000 gifts of cash or other property, tax-free, although no individual recipient can receive more than $14,000 in a calendar year. For example, if you give $20,000 to someone, then you only pay gift tax on $6,000. Couples can give away $28,000 worth of money or property per recipient without paying a gift tax each year. Also, all gifts you make to your spouse are tax-free if he or she is a U.S. citizen.
The annual exemption is based on a calendar year. Gifts of cash and investments, such as stocks, can be spread over several years. Keep in mind that if you give a large gift to a child under 18, an adult must be responsible for the money; usually through a trust or custodianship.
Gift-giving is not for everyone. If parting with assets makes you feel uncomfortable, gift giving may not be for you. You may decide that your children or grandchildren are not ready to appreciate such generosity. However, for some people, helping a young adult with their education or helping new parents buy a house can be very satisfying.
If you require assistance with estate planning, consult with an experienced estate planning attorney.
Juan C. Velasco, Esq. is a trusted attorney who has been serving the New Jersey area for over 25 years. If you are in need of experienced legal counsel, please contact Velasco Law Office and we will be happy to assist you.