Estate planning viewed through the lens of asset protection.®

Are Annual Gifts A Good Investment Idea?

Many parents and grandparents have worked hard to create wealth. Investments may have taken off and performed well. While you may have indicated who will receive your assets after you die, there may also be a way to give money to your loved ones now without a tax implication.

Since 1996, attorney Rod Hatley had provided sage counsel and guidance to clients on issues of gift-giving and planning. He can help you understand which option is the most fiscally viable and beneficial, given your situation and goals.

Reasons To Give A Monetary Gift Now

If the value of your estate exceeds the allowable amount to avoid taxes, giving annual gifts of the tax-free amount to your children or grandchildren may be a good option. In 2021, the tax-free exclusion is $15,000, and the cumulative lifetime exemption (how much your estate can be worth without triggering the 40% tax) is $11.7 million and $23.4 million for a married couple. The 40% gift and estate tax is paid by the estate, not the recipient. An additional tax, called the “generation-skipping transfer tax” or GSTT, is also applied, also at 40% on any amount over the allowed amount.

Each year both you and your spouse are allowed to give up to $15,000 to an individual. So, if you have a grandchild who is in college, this may be a good time to help that child out with the opportunity to study abroad or to take an unpaid internship. There are viable ways to give directly to your grandchild’s education costs (tuition or room and board) or medical needs to avoid paying taxes on the gift.

If your grandchildren are older, money may be needed for the purchase of a home, to start a business or for a nest-egg investment. If you and your spouse both give $15,000 to each of your children and also to each of your grandchildren, this adds up over the years and may be a way to avoid being hit with the 40% federal tax. There is no California state gift tax, just the federal tax.

One benefit to annual giving is that you get to see how your gift makes a difference. Your loved ones will be able to share with you how that gift made a positive impact on their lives and thank you in person.

Other Options For Gifting

There are many ways to give larger monetary gifts to your children or grandchildren. It is best to speak with your trusted estate planning attorney about which option is best for you. Some of the options to avoid paying exorbitant federal taxes when giving large monetary gifts include:

  • A 529 college savings plan, which is federally tax-free and is set up similar to a retirement account except that it is for educational use and can be given all in one year
  • A Uniform Transfer to Minors Account (UTMA), where an adult acts as the custodian until the child is 18 or 21
  • A trust, which can be revocable or irrevocable and can be for an adult, minor or a loved one with special needs
  • A Delaware Dynasty Trust, which lasts in perpetuity
  • A significant gift to a charity or a nonprofit organization

Understanding your options is the best way to make the choices that are in alignment with your values. Planning through the lens of asset protection will give you a clear picture of the path to take.

Plan To Include Gifts. Get Guidance On How.

Rod Hatley founded Hatley Law Group APC to help parents understand their options and leave a meaningful and lasting legacy for their children and grandchildren. He understands your desire to leave a legacy that positively impacts generations to come. Call 858-564-7090 to find out more about how gift tax planning can be a valuable and meaningful way to improve the lives of your loved ones now. You can also reach Rod at the firm via website contact email. Based in San Diego, Rod meets with clients all over California.