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5 Reasons You Should Have A Trust

August 24, 2017

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Gifting As A Way To Reduce Tax Consequences

 

 

 

 

 

Yes. A gift to your adult son or daughter to pay off their student loan would be a wonderful surprise. Planned gift giving has been gaining popularity in recent years because we are now living longer.

 

Many people don't have to worry about the federal estate or federal gift tax.  For anyone who passes away in 2019, there is a lifetime exemption of $11.4 million dollars.  This means that you can give away this amount without any federal tax consequences.  This amount varies from year to year, as it is increased to keep up with inflation.

 

If you are concerned that you could potentially owe federal estate taxes, then one way to remedy this is to start giving away property and money during your lifetime.  As of January 1, 2019, you are able to give away $15,000 to an individual, per year.


As we mentioned before, planned gift giving has been gaining popularity because we are now living longer. If you wait to give your assets away until you die, then your children could be entering old age themselves.  You not only get to see your gift enjoyed, but it could also be of much greater use when the recipient is younger and really needs it (e.g., college tuition or help with a first home).


How it Works
This principle is called the "annual exclusion" and is straight forward.  This amount is adjusted in $1,000 increments to keep up with inflation.  If you are married, then the amount doubles.  So as a married couple, you are able to give away $30,000 per person, per year.  It is important to note that if you miss a year, you cannot go back and use that exemption.


What You Are Giving
If you decide to give anything other than cash or securities, then be sure to get a professional appraisal of the item at the time you make the transfer.
Also, the gift must be a present interest, or something the beneficiary can use now, not later.  Some people use the annual exclusion to fund a trust.  To satisfy the present interest requirement, they can give the beneficiaries a letter, granting them the right to withdraw the amount of their annual gift from the trust within a specified period of time.  A formal letter must be sent to document this.  It can be very important down the line should you ever be audited.


Gifts to Children
Giving to minor children raises a few issues.  Because you are giving cash or property to a minor, an adult will need to be responsible for the property.  This can be accomplished by putting the property into an irrevocable child's trust or custodianship.  If an irrevocable child’s trust is created, then the child may be able to enjoy the gift for the rest of his or her life.  If a custodianship, such as a Uniform Transfer to Minors Act account, is created, then the cash or property can be released to the child at age 25.


Consider Your Options
Sometimes people are uneasy because they worry they may not have enough to get them through their retirement years.  If the prospect of parting with your money before your passing makes you uncomfortable, then you should not do it.  On the other hand, knowing that you helped someone get through college or purchase their first home can be extremely gratifying.

 

If you would like to discuss how this can apply to you, then please give Rod a call at (858) 792-3444.

 

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