Individuals with large estates may seek different ways to minimize future estate tax for those individuals whom they intend to receive their assets following death. Unfortunately, estate taxes can very easily eliminate a large chunk of your inheritance if your estate is large enough. However, you can use year-end gifts to your loved ones in order to both pass your wealth onto the next generation and reduce your taxable estate. If the value of your estate falls beneath a certain threshold, it is exempt from estate tax.
Gift Tax Exclusions
Certain types of gifts or transfers of funds are excluded from the gift tax. This means that you can use these mechanisms to transfer what is essentially a future inheritance to your children or grandchildren. The first $14,000 that you gift to any one individual is excluded from gift tax. For a married couple, this means that each spouse could gift $14,000 to a child, for a total of $28,000, that will be excluded both from estate and gift tax.
The gift tax exclusion for a particular year expires on December 31 of each year. When made on an annual basis, these gifts can add up to a significant portion of your estate over time. Keep in mind, however, that you cannot carry over the gift tax exclusion from one year to the next if you do not use it. In other words, the law does not permit you to make no gift one year, and then make a $28,000 gift the following year, reasoning that you are using the exclusion amounts for both years. If you do not make a gift valued at the full amount of the gift tax exclusion in a particular year, then you lose the ability to use the unused amount of the exclusion.
Gifts and Transfers Not Subject to the Gift Tax
Various types of gifts and transfers do not trigger the gift tax at all. This is another means by which you transfer a future inheritance to your heirs and still reduce your taxable estate. For instance, contributions to a §529 College Savings Plan are also excluded from gift tax up to the $14,000 threshold. Plus, these kinds of contributions may entitle the giver to a state tax deduction in some situations. Furthermore, the direct payment of an individual’s medical or healthcare expenses is not subject to the gift tax at all. There is no limit at all on the amount of medical expenses that you can pay for an individual without triggering the gift tax, so long as the payment is made directly to the medical provider and the expense would qualify as an income tax deduction.
Contact Your DuPage County Estate Planning Attorneys Today
Our firm prides itself on providing our clients with a full range of estate planning and probate services that are essential for anyone who wishes to adequately prepare for the future and protect his or her heirs from costly taxation. We will work with you to gather all of the information relevant to your situation, answer any questions that you may have, and attempt to address your concerns throughout the legal process. Contact our office today and set up a consultation with one of our skilled DuPage County wills and trusts attorneys, and learn how we can help.