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Gift while living or transfer assets to heirs at death?

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 10/24/18

The Tax Cuts and Jobs Act raised the lifetime exclusion limits for estate and gift taxes from roughly $5.5 million per individual to over $11 million.

At the same time, the annual gift tax exemption was raised to $15,000 for individuals and $30,000 per couple. If the gift exceeds the annual exemption, the amount is applied against the donor’s lifetime gift limit. Ultimately, the amount applied to the lifetime limit will affect the calculation of the donor’s estate tax.

Individuals can choose to make a gift while they are living, or include it in their estate plan for distribution upon death.

Considerations for giving while living

  • Help heirs now and see the impact of the gift
  • Potential to avoid or minimize future estate taxes
  • Shift assets to family members with less creditor risk
  • Shift the tax burden to family members in lower tax brackets
  • Ability to take advantage of certain valuation discounts when transferring family-owned businesses and farms
  • Potential to minimize state taxes in states where lifetime gifts are not taxed
Considerations for transferring assets at death
  • Ability to maintain control or utilize assets while living
  • Preserve the step-up in cost basis of assets upon death (For lifetime gifts, recipients inherit the original cost basis of the assets. Heirs receiving assets upon death assume date-of-death cost basis.)
  • Gifts made during lifetime could depreciate in value
  • Future policy changes could impact gifts. (If the federal gift and estate tax is repealed in the future, lifetime gifts may not be appropriate.)
Review your estate plan

To understand how estate tax and gift tax rules may affect your personal financial plan, it is important to consult a financial advisor. Individuals considering advanced planning strategies around estates and gifting should work with a qualified estate planning attorney who has knowledge of their financial situation and goals. For an overview of the current rules, read Putnam’s investor education piece, “A closer look at the current estate and gifting tax rules.”


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About this blog

Financial-planning experts Bill Cass and Chris Hennessey weigh in each week with a range of insights about complex financial planning needs.

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