Estate Planning Lawyer
Gifting in Terms of Your Estate
Getting a head start on your estate planning is never a bad idea. You’ll have to determine who your beneficiaries are, take a full assessment of your assets, and create a legal document, such as a will or trust, that will create a smooth transition of your estate to your loved ones after you die. Gifting is another aspect of estate planning to consider, but what exactly is it and how does it affect taxation?
Gifting simply refers to when you give someone an asset. This is different from passing on your estate to loved ones after you die. Instead, gifting is done while you are still alive. The main benefit of gifting is avoiding taxes on your estate, which is what happens to property in a will or trust.
The Gift Tax
A gift tax applies to any property you give to another person without receiving any value in return. Even selling someone property for less than what it is worth can be considered a gift and is also taxable. There are some exceptions to the gift taxation, as well as some strategies you can use to pay the least amount in taxes. As the gift giver, you are the one responsible for paying the taxes, so it can pay off knowing how to get around it.
Exemptions to the Tax
There are four main categories of exemptions from the gift tax: gifts to a spouse, gifts to a political organization, gifts made under a certain amount, and gifts that pay for someone else’s medical costs or tuition. Gifts to charity can also fall into exemptions. The federal government places a limit on the amount you can gift someone in a calendar year without being taxed. If you go over that amount, you can be taxed.
Strategies to Avoid Taxation
Annual gifting is the easiest way to avoid taxation on your estate. This process involves gifting under the federal limit each year. By doing so, you gradually give parts of your estate to your inheritors without paying taxes on them. The gift cannot be a future promise (as that would be no different than estate in a will), but a current asset that you can give now. Learn how to avoid the gift tax and make an estate plan that is right for you by reaching out to an estate planning lawyer in Lafayette, LA from a firm like Theus Law Offices. They can guide you through the process and set you and your loved ones up for the future.