Estate Planning: More Than Planning for DeathPart of estate planning involves deciding how much you want to give away while you’re alive. Many, many people get a lot of joy from seeing their loved ones benefit from and even grow gifts. In some sense, that’s infinitely more gratifying than working to put an estate plan in place and letting the gifts occur after your death. You worked for your assets, and if you know they’re going to be passed on, why not enjoy the process of gifting now? It’s at least worth thinking about, for the tax benefits alone if nothing else. The Two Easiest Ways to Gift There two very easy ways to give gifts without incurring any gift tax, which coincidentally reduces the size of your estate and your estate tax liability, if applicable. Giving gifts, in short, is a very effective double-edged sword for fighting the tax monster. The two easiest ways to give are as follows:
- You may pay an unlimited amount of tuition and medical expenses for as many people as you want, so long as such money is paid directly to the educational or healthcare institutions; and
- You may give up to $13,000 annually to as many individuals as you like. If you ever give more than $13,000 worth of cash or assets to a single individual, you must file a gift-tax return, and the amount exceeding $13,000 will go against your lifetime gift tax credit.
- Give directly to a charity that you believe in.
- Contribute to a charitable gift fund. These are like IRA’s in that you make a contribution (which is tax-deductible), grow the money tax free, and then direct it to the charity of your choosing.
- Donate to a foundation that pools donations and then allocates grant money to local charities or causes that you designate.
- Set up a charitable trust. These either allocate income to a charity or cause of your choosing and the principal to your heirs or vice versa.