Leaving behind money to your family, friends and other loved ones is a satisfying option for those with property to leave behind when they pass. However, for those with considerable assets, your property may be taxed heavily by the federal government if you do not take the appropriate estate planning steps to avoid excessive taxation. While most estates will never be taxed due to not being large enough, we urge you to consult with an attorney when you begin planning your estate. If you own real estate and have a successful stock portfolio, you can quickly get to that magic number of $5.49 million that marks a taxable estate.
Gifting to Reduce Your Taxable Estate Requires Careful Planning Throughout the Years
You can give up to $15,000 (as of 2018) to any individual, other than your spouse, in a calendar year without that being taxed, according to the Internal Revenue Service. You can give up to the lifetime giving amount to any number of individuals without being taxed as well. Your lifetime tax-free gifting amount is set at whatever the estate tax is currently set at ($5.49 million). This means that if your estate is worth $7 million–an amount that could be heavily taxed when you pass away–you could potentially gift away much of that before you pass and avoid estate taxation altogether. However, this will require careful, meticulous gift planning. And, depending on the size of your estate, it may require getting an early start. For example, imagine the following scenario: you have six beneficiaries that you wish to begin gifting the maximum of $15,000 per year. This would be giving a total of $90,000 per year. Your goal is to decrease your $6 million estate down to just under $5.49 million to avoid the estate tax through gifting. This goal would take over five and a half years to accomplish. Obviously, the larger your estate and the fewer your beneficiaries, the longer it will take to reduce your estate to $5.49 million.
Giving to Charitable Organizations, Non Profits, and Other Important Groups
In 2016, charities were given $390 billion in the U.S. While bequests fell, according to Giving USA, this represents an increase in individual gifting by four percent. Another way to reduce the estate tax is to make a charitable gift or a gift to a non-profit. There are many organizations to choose from, and the sooner you start planning, the more meaningful and impactful you can make your gift.
Call Maryland Estate Planning Attorney Tara K. Frame Today
It is never too early to start thinking about your estate, especially when you want to use gifting to reduce the size of your taxable estate. This method requires considerable planning and forethought, which is why we recommend that you call the highly experienced Pasadena estate planning lawyers of Frame & Frame. Contact us today or at your soonest availability to set up a free consultation.
Resources:
irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes#4
givingusa.org/giving-usa-2017-total-charitable-donations-rise-to-new-high-of-390-05-billion/