Wrapping Up the Year with Gifts . . . Estate Planning Strategies for Gifting this Year

This time of the year is all about gift-giving.  So, it only makes sense that, as 2020 draws to a close, we think about how we can incorporate some gift-giving into our overall estate planning.  

In our last article, we discussed year-end charitable giving .  In this article, by contrast, we are going to focus on gift-giving to anyone, including friends, children, nieces, nephews, and anyone else in your life.  Indeed, many families consistently gift their assets to their heirs and do so with an eye towards reducing their estate in a way that provides the most tax benefit to themselves and their heirs.

Here, we are going to discuss four particular gifting strategies that might work very well in your own estate planning.  Those strategies are:

1. An annual exclusion gift;
2. A Roth IRA;
3. Funding a loved one’s college education;
4. Giving the gift of stock;

If, after reading this article, you have additional questions on gifting, then we welcome you to contact the Palm Beach County lawyers at Doane & Doane, PA.  Call today at 561-656-0200 or fill out our online contact form . 

First and foremost, you need to know about “Annual Exclusion Gifts.”  Because the IRS has come to the conclusion that tracking “small” gifts are too cumbersome for the agency, it allows a taxpayer to give $15,000 (for the tax year 2020) per recipient, per year.  That $15,000 can be in cash or property, and it does not incur any gift or estate taxes. Moreover, the recipient does not have to recognize the gift as income on their own tax returns.  

Thus, a married couple can give $30,000 to their loved ones without worrying about gift or estate taxes.  If that couple has five children and five grandchildren to whom they would like to pass on their wealth, then they can do so. That means that they can give a total of $300,000 to those loved ones under the annual exclusion.  

Now, let’s talk about ways in which you might want to pass on your wealth using the exclusion.

A Roth IRA is something that would be a great gift for a loved one.  The Roth IRA has the one basic benefit common to all Individual Retirement Accounts – tax-deferred growth – yet, it has an added feature that makes it so powerful come retirement.  Any distribution after the age of 59 ½ is paid out income-tax free because you are taxed at the time you deposit money into the IRA.  That is pretty amazing because the amount of money you have at the time of retirement will be more (maybe much, much more if you started early) than what you put in.  So, it is naturally better to pay taxes on the front end, rather than the back end.

Thus, a Roth IRA is a great gift for a young person in your life.  You pay the taxes upfront, and the money grows for your loved one, tax-free, and is paid out tax-free when your loved one hits age 59 ½.  In short, a good way to give away your wealth to your family is through a Roth IRA.  It may not be as fun as a new toy, but your young heirs will eventually thank you.

You could use your annual exclusion gift by funding a “529 plan” which allows you to grow tax-free savings for college.  So, boost a loved one’s college fund by creating or adding to a 529 plan, which is a college savings plan that grows tax-deferred, and distributions for qualified tuition and fees are income tax-free.  Note:  be careful not to over-fund the plan because any gains on contributions that are not used for qualified education expenses are taxed and may be subject to a 10 percent penalty.

Again, the stock is not a fun, shiny thing for a young grandchild, yet it is a long-term gift that will get the ball rolling on your grandchild’s future in investing.  There are a number of benefits to giving stock as a gift:

1. It is an educational tool in investing for your young loved ones;
2. It lowers your capital gains tax liability because any gain in stock is not realized at the time of the transfer; and
3. It allows you to reduce your estate by the fair market value of the stock, which may lower your tax liability.

In sum, there are many tax-free ways to transfer your wealth to loved ones.  And now is the season to do it.  

Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout Southeast Florida.

Estate planning is about much more than just giving away property.  It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved one.  At Doane & Doane, our tax and estate professionals help people plan for retirement, make provisions for loved ones, figure out future child support, and minimize tax liability .  Experienced wills and trusts attorneys know which tools to use to get the best results for their clients.  Our lawyers can help you determine which tooltel:s are best suited to your specific circumstances.

When it comes to probate matters, such as the formal administration of an estate, Florida fiduciaries seek the assistance of the attorneys at Doane & Doane, P.A. to administer and manage their trusts and estates.  Notably, the founding partners of Doane & Doane are board-certified West Palm Beach Probate Attorneys .  With the additional advantage of certified public accountancy in their backgrounds, they present a unique combination of skills and experience which enables them to effectively settle, administer, and manage clients’ trusts and estates.

Since the day we opened our doors, we have worked hard to earn a reputation as one of the region’s most prominent tax and estate planning law firms in Palm Beach County, Florida. Our dynamic team includes the firm’s founding partners, experienced associate attorneys, and an outstanding team of paralegals, legal assistants, and support