Gifts During Lifetime Has Advantages
Making Gifts During Your Lifetime Has Estate Planning Advantages

Gifts During Lifetime Has Advantages

There are several non-tax advantages of making lifetime gifts. One is that you’re able to see the recipient or “donee” enjoy your gift. It might give you satisfaction to help your children achieve financial independence or have fewer financial concerns.

WMUR’s recent article, Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

At your death, your property may go through probate. Lifetime giving will help reduce probate and administration costs, since lifetime gifts are typically not included in your probate estate at death.  Unlike probate, lifetime gifts are private.

Let’s discuss some of the tax advantages. First, a properly structured gifting program can save income and estate taxes. A gift isn’t taxable income to the donee, but any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor must pay state and/or federal transfer taxes on the gift. There may be state gift tax, state generation-skipping transfer tax, federal gift and estate taxes, as well as federal generation-skipping transfer (GST) tax.

A big reason for lifetime giving is to remove appreciating assets from your estate (i.e., one that’s expected to increase in value over time). If you give the asset away, any future appreciation in value is removed from your estate. The taxes today may be significantly less than what they would be in the future, after the asset’s value has increased. Note that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, it will usually receive a step-up in value to a new basis (usually the fair market value at the date of your death). Therefore, if the donee plans to sell the asset, she may have a smaller gain by inheriting it at your death, rather than as a gift during your life.

You can also give by paying tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These transfers are exempt from any federal gift and estate tax.

Remember that the federal annual gift tax exclusion lets you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees, without any federal gift and estate tax or federal GST tax (it applies only to gifts of present interest).

Prior to making a gift, discuss your strategy with an estate planning attorney to be sure that it matches your estate plan goals.

Learn how to make a gift of the family vacation home.

Reference: WMUR (April 18, 2019) “Money Matters: Lifetime non-charitable giving”

Who Pays What Taxes on an Inherited IRA?

The executor of a person’s estate must take on the important responsibility of ensuring that the deceased person’s last wishes are carried out, concerning the disposition of their property and possessions. There are times when investments and savings are part of that estate.

An individual may have an IRA that designates the beneficiary or her estate as her heir. Inherited IRAs are not like other assets. Executors must be aware of what to do when withdrawing the IRA into the estate account, particularly about how will these funds will be taxed.

nj.com’s recent article asks “Who pays taxes on this inherited IRA?” It explains that the distributions from an IRA are treated as ordinary income by the federal tax code.

The will must be probated, and it may stipulate that the money from the IRA is to be given to the deceased’s children.

These distributions to the children are taxed at their marginal tax rates. However, it is important to note that when an estate is an IRA beneficiary, the entire account must be withdrawn within five years.

If the executor moves the IRA directly into inherited IRAs for each of the beneficiary children, the beneficiaries would be responsible for paying the taxes.

If the executor withdraws the IRA assets, then the executor would pay the taxes from the estate assets.

You will need to speak with the custodian of the IRA to find out what is and is not permitted in terms of distribution: are they allowed to roll the IRA into a beneficiary IRA, or can they divide the account into separate IRAs for the beneficiaries? The distribution must take place within five years, so keep that in mind when discussing options and goals for the IRA and the heirs. An estate planning attorney will be able to determine your best tax options for the inherited IRA when settling the estate.

Reference: nj.com (January 7, 2019) “Who pays taxes on this inherited IRA?”