The Charitable Estate: Lifetime Giving

Giving to charity is an important aspect of many estates. Those wishing to give gifts in a tax efficient manner should consider the positives and negatives of certain types of gifts. Many people who are wishing to help reduce estate taxes should consider spreading gifts throughout their lifetime.

Lifetime Gifting

In most cases, it is better to give money to loved ones while you are still alive than to wait until you pass away. Currently, a person can give up to $14,000 each to any number of other persons in a single year without incurring a taxable gift. This $14,000 annual exclusion is beneficial to you and to the recipient who typically does not owe taxes on the gift and does not have to report it unless it is from a foreign source. Any gift over the $14,000 exclusion must be reported on a Gift Tax Return and spouses splitting gifts must always file this Gift Tax Return even when no taxable gift is incurred. It is also possible to make unlimited payments directly to medical providers or educational institutions on behalf of others for qualified expenses though incurring a taxable gift. This can be a bit of a loophole.

Consider gifting highly appreciated assets in your lifetime. This planning will allow you to take an income tax deduction for the donation, while bypassing the capital gains tax that would be owed if you cashed in the assets yourself.

Limits To Gifting Exemptions

There is a limit to the free gifting. Donors have aggregate lifetime exemptions. A donor can give away up to $5.45 million during their lifetime and still avoid gift tax. While most people’s donations do not totally anywhere near the $5.45 million exemption, it is important to remember that this number applies to gift and estate taxes combined.

Contributions of appreciated securities or property in a single year are also limited. Any amount given that exceeds the limit can be carried forwards and deducted over the next five years.

The Larger Plan

Lifetime gifting is just one way to give meaningful monetary support to those you love. This strategy can be laid out to maximize your donations while minimizing taxation. By giving while you are still alive, you will also have a unique opportunity to see how your donation impacted the lives of those around you. Donations or contributions made after you pass away are, by nature, much harder to fully control.

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