Lifetime Gifting

Wealth Advisor

In this video, Jamison, an advisor at EWA, discusses the benefits of lifetime gifting to your children, particularly in the context of estate planning. He highlights a scenario where an individual has a substantial net worth, well above the federal estate tax exemption.

Jamison explains that under the current tax code, individuals can gift up to $15,000 per year to any individual without reporting it to the IRS. Anything exceeding this amount goes against the federal estate tax exemption. He provides an example where a couple with three children and their spouses can gift a total of $180,000 per year, ultimately saving significant taxes in the long run.

The advantages of this strategy include tax avoidance, imparting financial values to children while the grantor is alive, and preventing children from inheriting a large sum all at once. However, he also mentions the downside that once the money is gifted, it is no longer under the grantor’s control, and the recipients can spend it as they wish.

Jamison suggests several strategies, such as maxing out Roth IRAs, 401(k)s, or funding 529 plans, depending on individual circumstances. He concludes by inviting viewers to reach out for personalized advice tailored to their specific situations

Video Transcript

I am Jamison, an advisor at EWA, and in this video I’m going to talk about the benefits of lifetime gifting to your children. There are many things that should be considered. This depends on situation. But one example when this would make a ton of sense is, let’s assume an individual has a net worth of $20 million.

Right now the federal estate exemption is $11 .7 million. There’s talks of this decreasing to $6 million. This individual dies tomorrow. $11 .7 million is federal estate tax free. State inheritance tax varies by state. So $8 .3 million is taxed at 40%.

And on the federal level that’s $3 .3 million in taxes. This would be a perfect situation for someone to consider lifetime gifting to any beneficiaries or children. Under the current tax code you can gift up to $15 ,000 a year to any individual without reporting it to the IRS.

Anything above the $15 ,000 goes against that $11 .7 million federal exemption. So in the same example above, let’s imagine this individual has three kids and all three kids are married. They could gift $180 ,000 a year to their children and their spouses.

Spouse one could give $15 ,000 to all six individuals for $90 ,000 total. And spouse two could gift $15 ,000 to all six individuals for another $90 ,000. If this is done for 20 years, it’s a total of $3 .6 million. This all avoids the 40% federal estate tax and saves about $1 .4 million in taxes.

But if this money is invested and not spent by the children, then that $180 ,000 a year let’s assume a 6% growth rate invested in the kid’s name so it’s not in the parent’s estate and this would grow to nearly $7 million and save about $2 .8 million in future taxes.

So the pros to this, this avoids taxes if you’re over the federal exemption. Allows you to teach children values about money while you are still alive and this allows the children to not inherit a large sum of money at one time. Downsides to this though, the money is no longer yours once it’s in the children’s name and the children can spend this however they want to.

So some strategies would be to gift money to the children, to max out their Roth IRAs, have them max out their 401K and then spend the money that you’re gifting them to make up for the decrease in paycheck. Or you could fund 529 plans and 529 plans would actually allow you to gift more as you can do a five -year accelerated gifting contribution and you could establish in your vocal trust that holds investments or life insurance but you’d have to include crummy letters.

So again, this is situation by situation circumstance but if you have any questions specific to your situation feel free to reach out.

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