This time of the year is all about gift-giving. So, it only makes sense that, as 2021 draws to a close, we think about how we can incorporate some gift-giving into our overall estate planning. In this newsletter, we are going to focus on gift-giving to anyone, including friends, children, nieces, nephews, and anyone else in your life. Indeed, many families consistently gift their assets to their heirs and do so with an eye towards reducing their estate in a way that provides the most tax benefit to themselves and their heirs. Here, we are going to discuss four particular gifting strategies that might work very well in your own estate planning.

First and foremost, you need to know about “Annual Exclusion Gifts.” Because the IRS has come to the conclusion that tracking “small” gifts are too cumbersome for the agency, it allows a taxpayer to give $15,000 (for the tax year 2021) per recipient, per year. That $15,000 can be in cash or property, and it does not incur any gift or estate taxes. Moreover, the recipient does not have to recognize the gift as income on their own tax returns. Thus, a married couple can give $30,000 to their loved ones without worrying about gift or estate taxes. This can provide a significant estate tax benefit over time. If, for example, a married couple has five children and five grandchildren they would like to benefit, they can annually decrease their taxable estates by $300,000 without utilizing any estate tax exemption.

A Roth IRA is something that would be a great gift for a loved one. The Roth IRA has the one basic benefit common to all Individual Retirement Accounts – tax-deferred growth – yet, it has an added feature that makes it so powerful come retirement. Any distribution after the age of 59 ½ is paid out income-tax free because you are taxed at the time you deposit money into the IRA. That is pretty amazing because the amount of money you have at the time of retirement will be more (maybe much, much more if you started early) than what you put in. So, it is naturally better to pay taxes on the front end, rather than the back end. Thus, a Roth IRA is a great gift for a young person in your life. You pay the taxes upfront, and the money grows for your loved one, tax-free, and is paid out tax-free when your loved one hits age 59 ½. In short, a good way to give away your wealth to your family is through a Roth IRA. It may not be as fun as a new toy, but your young heirs will eventually thank you.

You could use your annual exclusion gift by funding a “529 plan” which allows you to grow tax-free savings for college. So, boost a loved one’s college fund by creating or adding to a 529 plan, which is a college savings plan that grows tax-deferred, and distributions for qualified tuition and fees are income tax-free.

Again, the stock is not a fun, shiny thing for a young grandchild, yet it is a long-term gift that will get the ball rolling on your grandchild’s future in investing. There are a number of benefits to giving stock as a gift:

On September 13, 2021, the House Ways and Means Committee release a proposal for new tax changes that may impact longstanding estate planning strategies. Check out this short video with a message from board certified estate planning attorney Rebecca Doane on some of the proposed tax changes that might affect your year-end gifting strategies:

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