Holiday Gift Giving Guide

Holiday gift giving can feel rewarding and fulfilling by showing your appreciation to loved ones and friends. Unfortunately, in person shopping has become difficult this year due to store restrictions and CDC social distancing guidelines. But one of the best ways to safely gift this year is through estate gifting. It’s one of the easiest ways to ensure your money stays safely in the family or transfers safely to your recipient. Giving while you’re alive can also bring down the value of the estate. And it will allow you the invaluable opportunity of seeing a life changing moment happen to your recipient.

Tax Exemption Gifts

As of 2020, the IRS allows individuals to give up to $15,000 per person and married couples up to $30,000 in gifts, tax free, while also ensuring the money is tax-free for recipients. It’s important to remember that everyone, no matter their estate plan, is taxed on what they own when they die. There are only two ways to reduce that tax: Owning less (gifting or charitable donations) or making what you own worth less. Real estate owners might be uniquely situated to do both. Consider gifting real estate whose values are depressed due to the pandemic and economy. But be careful about giving away assets that appreciate in value such as stocks or a house, as they can be worth more in the long run, making it more beneficial to transfer after death rather than before.

Trusts for Giving

For married couples who are uncomfortable gifting significant amounts to their descendants, each spouse can gift up to the unified federal gift and estate tax amount to a Trust (currently 11.58M) for the other spouse (also known as a spousal lifetime access trust, or SLAT) so that access is not lost.

Gifting Through Charitable Giving & Donations

Another way to give and reduce your estate value is through charitable giving and donations. The CARES Act made a new deduction available for up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. Individuals can elect to deduct cash contributions, up to 100% of their 2020 adjusted gross income, on itemized 2020 tax returns. This is up from the previous limit of 60%. Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The RMD (required minimum distributions) is an attractive way for donors to make a significant charitable gift (up to $100,000 per individual) directly from their IRA to a charity through a qualified charitable contribution (QCD) while avoiding taxable income. Rather than giving a one-time gift or an RMD, you could also consider setting up a donor advised fund. This option would give you an immediate tax deduction for money deposited in the fund and then let you make charitable grants over time. A child or grandchild could be named as a successor in managing the fund as well.

Medical & Educational Gifts

Maybe you’d like to improve someone’s medical or educational journey. Direct payment for a child or grandchild’s medical or educational expense is also considered a tax-free gift. Payments made directly to a provider or institution are not taxable and these payments do not require a gift tax return. Or you can consider contributing to a 529 College Savings plan. Up to $15,000 can be contributed tax free each year. The main advantage is that the money will grow in the account, free from taxes. It’s also possible to front load five years’ worth at once ($75,000 from an individual, $150,000 from a couple).

Striking the right balance of gifting without burden whilst aligning with your goals is important. It requires the right expertise to make sure it’s secured. Let us help you decide what strategy is right for you and your family. Your legacy depends on it. Call one of our estate planning attorneys today!


Tax Disclaimer:

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax or accounting advice.