How can I incur the least amount of tax when gifting assets to my loved ones?
It’s the holiday season and giving is in the air. You have always been told that it is better to give than to receive and now it is time to put that mantra into action. Many people are interested in gifting assets to their loved ones, either during life or at death. Can you do this? If so, can you do it without being taxed? If you know and understand some simple guidelines the answer is yes.
You might want to give money away so that you can witness your children, grandchildren or other family members enjoy it while you are still alive or to spend down a large estate. In general, you are permitted to give any one person $14,000 in cash tax-free every year. If you are married and your spouse wants to join in the gift, you can give any one person $28,000 every year without incurring taxes. However, you must be cautious about gifts given during your life and ensure that you are not giving away money that you might need in the future.
Parents and grandparents are also permitted to give tax-free monetary gifts in the form of college tuition or health insurance payments. While there is no limit to these gifts, they must be paid directly to the school or health insurance company.
In addition to giving gifts to loved ones during your lifetime, you can also give gifts to your family after your death. When drafting an estate plan, you want to create a plan that incurs as little tax as possible. Currently, the federal estate tax exemption is $11.4 million. The Massachusetts estate tax exemption is $1 million. This means that you will only pay a federal estate on any amount of $11.4 million and a Massachusetts estate tax on any amount over $1 million. You can spend down the assets that will be included in your estate by making gifts during your life, such as the ones discussed above, so that you are not subject to the federal or state gift tax.
If you are considering making a gift of your assets but are concerned about the tax consequences in relation to your estate plan, you should consult with an attorney.
