Lifetime Estate Gifting and Generational Planning

There are many benefits to giving money away while living – as opposed to traditional methods of passing the estate to the designated heirs upon death. Some of the advantages of gifting while living – commonly referred to as a “living inheritance” is to place money with trusted heirs or children to manage the proceeds in a prudent manner, avoid probate, minimize or eliminate inheritance taxes and to plan for VA and Medicaid qualification.

Under current gifting laws, up to $14,000 may be gifted to any number of persons in a single year without incurring a taxable gift ($28,000 for spouses). The gift is tax free to the recipient and typically no tax reporting is required. This type of gifting is known as “annual exclusion” under current IRS rules.

If the gift is split or exceeds the $14,000 limit, IRS regulations require that a Gift Tax Return be filed (IRS Form 709). The gift tax can be avoided however, under IRS recently “unified” lifetime gifting and estate tax provisions.

Lifetime gifting provisions allow gifts in any amount up to $5.43 million per living individual. For example: Mr. and Mrs. Smith have about $800,000 in cash and CD’s. Mr. Smith is in need of additional care and is a veteran. Prior to applying for Aid & Attendance, the Smith’s choose to gift the bulk of their estate to their 4 children.

The $800,000 gift exceeds the annual exclusion by $688,000 ($800,000 – 112,000(28,000 X 4). But under the “unified” lifetime exclusion – only 7% of the $10.86 million aggregate lifetime cap is counted – as both Mr. and Mrs. Smith each have a $5.43 million limit.

The Smith children may then choose to manage the funds in a qualified trust and make qualified payments to a medical provider on behalf of Mr. Smith. This method is referred to as “tax shifting” and allows the Smith children to claim the deduction on their individual tax returns.

If the Smith’s choose to gift directly to medical or educational providers on behalf of their loved ones – the contributions may be structured in a way to avoid the lifetime exemption. Typically this is done within the confines of advanced wealth transfer strategies – including endowment planning for non-profit and religious institutions.

A properly executed gifting strategy can preserve and insure perpetual wealth for future generations, address succession issues, reduce estate taxes and accelerate qualification for VA Aid & Attendance and Medicaid benefits.

To find out if gifting strategies and benefits planning are appropriate for your estate and care planning needs, contact: