Gifting Cash To Reduce Your Estate Taxes
Gifting Cash To Reduce Your Estate Taxes
By: Stacey Nickens
The giving season is upon us, and you may be sifting through magazines, trying to figure out what to give your relatives. Instead of buying your grandson his fifth pair of headphones, those with highly-valued estates might consider giving cash this holiday season. Doing could not only make your relatives happy, it could also reduce or eliminate estate taxes upon your passing.
For 2021, the federal estate tax exclusion is $11.7 million, and for 2022, the exclusion is $12.06 million. With such high exclusions, you may not consider your estate in danger of high taxes at your passing. However, as of right now, the estate tax exclusion is set to fall to $5 million in 2026, unless Congress votes to permanently codify the current amount. If the estate tax exclusion falls to $5 million, your estate could be taxable.
With that said, taking advantage of the annual $15,000 gift tax exemption could reduce your eventual tax bill. In 2021, can give up to $15,000 per person without having to pay taxes on the gift. (The gift tax exclusion will increase to $16,000 per person in 2022.) Spouses can give up to $30,000 per person each year. For example, a married couple with 2 married children and 2 grandchildren could give up to $30,000 to each of their children, each of their children’s spouses, and each of their grandchildren. This married couple could accordingly gift up to $180,000 in a single year without facing tax consequences. This move would also reduce the couple’s estate value by $180,000, potentially reducing or eliminating estate taxes down the line. The couple would qualify for the gift tax exclusion as long as the gift checks were deposited before December 31. Gifters should also keep in mind that their total, non-exempt gifts cannot exceed $11.7 million over the course of their lifetime. (This cap rises to $12.06 million in 2022.)
Even if your estate would be unlikely to exceed the federal estate tax exclusion threshold, 12 states and the District of Columbia levy their own estate taxes. Consider reviewing laws in your area to see if you may face state taxes upon your passing.
The Elm3 team is available to assist with year-end tax planning, including determining if gifting cash is in your best interest. Reach out to today to schedule your appointment.
