Building your asset portfolio will likely be an important goal during your lifetime. Along with ensuring that you are financially secure when you retire, you probably do this in the hope that you will also be able to pass down assets to children and/or grandchildren. If you are planning to pass down assets, deciding when to pass them down is something you need to consider. Whether assets are passed down during your lifetime or after your death can directly impact your personal taxes while you are alive, your estate tax liability after you are gone and even the overall relationship between family members. The Coral Gables estate planning attorneys at Stivers Law discuss whether it is better to gift now or after you are gone?
Reasons to Wait to Make Gifts
When most people think of passing down assets in their estate plan they envision doing so after they are gone. There are reasons to wait to make gifts, such as:
- Tax advantages. This can cut both ways – there are advantages to gifting now and later. One benefit to waiting, however, is that your beneficiaries can take advantage of the “stepped-up” basis in property that applies to gifts made at the time of your death. Being able to use a stepped-up basis can dramatically reduce the amount of capital gains owed when the property is sold.
- Continued control. Generally, once you make a direct gift to a beneficiary, you lose control of how that gift is used. While the same may apply for gifting after you are gone, it can be painful to watch a beneficiary squander or misuse assets while you are still here to see it.
- Retained income/resources. Life is unpredictable. Assets gifted now cannot be taken back later. If you unexpectedly need the income or value of that assets down the road, it is too late to change your mind which could leave you in a financially insecure position.
- Avoiding conflict. Making gifts now can spur family conflict that may persist for the rest of your life. Again, that same gift made after you are gone could cause the same conflict; however, you will not have to feel the repercussions if you are not here.
Reasons to Gift Now
Not surprisingly, there are also some compelling reasons why you might want to consider making gifts while you are alive, including:
- Making tax-free gifts. Gifts made during your lifetime may take advantage of the annual exclusion that allows each taxpayer to make gifts of up to $17,000 (as of 2023) to an unlimited number of recipients each year without those gifts counting against the taxpayer’s lifetime exemption that applies to federal gift and estate taxes. Additional exclusions may apply to gifts made directly to pay for tuition or medical expenses of the recipient.
- Reducing your taxable estate. Federal (and in some cases state) gift and estate taxes are levied on your estate during the probate process that follows your death. The tax is calculated based on the value of qualifying gifts made during your lifetime plus the value of your estate assets remaining at the time of your death. Gifting during your lifetime (when done carefully and in consultation with an experienced estate planning attorney) can reduce your taxable estate for gift and estate tax purposes.
- Protecting assets from spouses and creditors of the recipient. If you are concerned that assets passed down to a beneficiary might be at risk because of a spouse or creditors of the recipient (or recipient’s spouse), making the gift in a trust while you are alive can help protect the assets you gift.
- Ability to guide and advise. Waiting until you are gone to pass down assets means you will not be here to help guide and advise the beneficiary regarding how to manage those assets. Making the gift while you are still her, on the other hand, has the advantage of also passing down your wisdom and financial acumen along with the gift.
- Personal enjoyment. For many, the most important advantage to making lifetime gifts is the simple fact that they are still here to enjoy making the gift and to watch the beneficiary benefit from the gift.
Contact Coral Gables Estate Planning Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about estate planning, contact the experienced Coral Gables estate planning attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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