At the end of 2019, the IRS announced the estate and gift tax limits for 2020-2021 to be $11.58 million per individual, which is up from $11.4 million in 2019. When you’re doing advanced estate planning—making gifts in excess of $15,000 annual exclusion gifts—you’re using your lifetime gift/estate tax exemption1. Below are three ways to transfer wealth and realize maximum tax benefits.
1. Gifting the Annual Exclusion amount
The simplest way to support others is to gift the annual exclusion amount of $15,000 in cash or other assets each year to as many individuals as you would like. Married couples have the option of combining their annual exclusion to give up to $30,000 to any person tax-free. Annual exclusion gifts are not included in the calculation of gift tax liability so they will not count against the donor’s lifetime gift and estate tax exemptions. 2
2. Fund 529 college savings plan
Another option to give to grandchildren is by setting up separate 529 accounts for those you wish to benefit. Contributions to these accounts are considered gifts, but money in the accounts grow tax-free and can be withdrawn tax-free. Option of making a five-year accelerated gift utilizing five years’ worth of your annual gift tax exclusion. This allows you to gift up to $75,000 to each beneficiary’s 529 plan today and begin growing those assets tax-deferred and potentially tax-free. 3
3. Transferring appreciated assets
By transferring appreciated stocks or other assets, you can avoid your capital gains tax liability. Depending on the recipient's tax situation, they may qualify for a lower or 0% capital gains tax rate. Keep in mind that the annual gifting exclusion applies to gifted securities.
If you would like to learn more about the ways you can maximize tax benefits when gifting, contact us to schedule a free consultation.
This is not a recommendation and is not intended to be taken as a recommendation. This material was prepared for general distribution and is not directed to a specific individual.
LPWM LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers.