If you know that you are going to pass away with a healthy level of assets in your estate, experts say that giving gifts to your heirs now and throughout your life can reduce the amount of tax that is levied on your estate. Federal estate taxes don’t kick in until your estate is valued more than at $5.49 million, and married couples can leverage their status for an exemption that is effectively double the number for a single person.
It’s easy to underestimate the value of your total estate, though; when you throw in real property such as land and homes, you could end up over that threshold. Even if you don’t reach the federal threshold, many states have their own estate or inheritance taxes that can be a burden for heirs, and the threshold for those taxes is often lower.
Tax law provides you with an option for giving away some of that estate value before you die without paying taxes on it. You can gift cash to your heirs up to a certain amount each year without incurring the gift tax. The limit changes over time, so if you are employing such a strategy, make sure you know what the current limit is to avoid expensive tax surprises now.
Another option for reducing the size of your trust is giving to charity. You can give an unlimited amount to charity and even benefit from some tax deductions. While you can also give to charity out of your estate via your will or a trust, you don’t enjoy the same benefits once you are gone.
Whatever you choose to do, make sure it aligns with your overall estate plan and financial needs. When giving away any money or assets, you need to know those aren’t things you might need later in life.
Source: U.S. News & World Report, “A Charitable Way to Cut Your Estate Tax Obligation While You’re Still Alive,” Teresa Mears, March 03, 2017