Good News About Gifts

It’s worthwhile to understand the rules about taxes that might be triggered by your generosity, says Forbes in the article “How To Avoid Taxes When Giving Big-Dollar Gifts.” Did you know that you can give any one person as much as $15,000 every year, without having to pay any gift taxes? You can give any number of people up to $15,000 and they don’t even need to be relatives.

Note that if and when any gift taxes are due, it’s the giver who pays any gift taxes, and not the recipient.

Therefore, if you think the world of your next-door neighbor and give him a gift of $20,000, you only owe taxes on the $5,000 above the $15,000 limit, and that’s also if your total gift exceeds your lifetime exclusion. You don’t have to be generous with cash only. Gifts can come in the form of stock, a boat or jewelry. Just remember to keep it under $15,000, so as not to incur any gift taxes.

The $15,000 limit is per person, not per couple, so if you want to give someone $15,000 and your spouse also wants to give them a $15,000 gift, that works. You can double the gift, while still staying under the annual limit.

If your gift is going to a charitable organization—a registered 501(c)(3), you won’t owe anything in gift taxes.

In addition to this $15,000 annual cap, wealthy gift givers should just keep in mind a $11.4 million maximum that is known as the lifetime exclusion. That’s the limit in 2019, and it will rise next year. This governs all the gifting you do during your lifetime. That’s outside of the annual exclusion of $15,000.

Anything more than that in the way of gifts, and you or your estate will have to pay estate tax. The top rate for the overage is high-40%. However, you’ll have to be mighty generous to get near that limit.

Here’s what’s nice: you won’t have to pay gift taxes every single time you go over that $15,000 limit. Let’s say you give your son $50,000 in 2019. Your gift is $35,000 above the ceiling, which is taxable.  However, rather than write a check for taxes to the IRS now, you count it against the $11.4 million lifetime exclusion. You now have $11.365 remaining.

The best way to go about gifting, is to make sure that your desired gifts are working in concert with your estate plan. One reason for gifting “with warm hands” is to reduce the taxable size of the estate, but there are many other ways to do this. There are also instances when gifts need to be reported to the IRS, even if no taxes are owed on them.

Speak with an experienced estate planning attorney about your gifting strategy, how it works with your estate plan and what gift tax forms you do, or do not, need to file.

Reference: Forbes (October 14, 2019) “How To Avoid Taxes When Giving Big-Dollar Gifts”

Relocating for Retirement? What You Need to Know

Sometimes having too many choices can become overwhelming. Move closer to the grandchildren, or live in a college town? Escape cold weather, or move to a mountain village? With the freedom to move anywhere, you’ll need to do some serious homework. A recent article titled “Don’t Relocate in Retirement Without Answering These 5 Questions” from Nasdaq contains some wise and practical advice.

There are some regions that are more retirement-friendly than others. If you end up in the wrong place, it could hurt your retirement finances. Therefore, ask these questions first:

What are the state’s taxes like? If you are living on Social Security benefits, retirement savings and a pension, the amount of money you’ll actually receive will vary depending on the state. There are 37 states that don’t tax Social Security benefits, but there are 13 that do. There are also some states that do not tax distributions from retirement accounts. Learn the local rules first. If you currently live in a state with no income tax, don’t move to a state that may require a big tax check.

If you live in a high tax state and don’t have enough money saved for a comfortable retirement, then moving to a lower tax state will help stretch your budget.

Is there an estate or inheritance tax, and is that a concern for you? If leaving money to heirs doesn’t matter to you, this isn’t a big deal. However, if you want to pass on your assets, then find out what the state’s inheritance taxes are. In some states, there are no taxes until you reach a pretty large amount. However, in states with inheritance taxes, even a small estate may be taxed, with those who inherit sometimes owing money on even small transfers.

What’s the cost of living compared to where you live now? When you’re working, moving to a place with a higher cost of living is not as big a deal, since your wages (hopefully) increase with the relocation. However, if your cost of living goes up and your income remains fixed, that’s a problem. The last thing you want to do is move to a place where the cost of living is so high, that it decimates your retirement savings.

If you live somewhere with high taxes and high prices, moving to a lower cost of living area will help your money last longer, and could make your retirement much easier.

Is it walkable or do you need a car? Cars present two problems for aging adults. One, they are expensive to maintain and insure. Two, at a certain point along the aging process, it becomes time to give up the keys. If you live in a walkable community, you may be able to go from having two cars to having one car. You might even be able to get rid of both cars and do yourself a favor, by walking more. This also gives you far more independence, far later in life.

What’s healthcare like? Even people who are perfectly healthy in their 50s and 60s, may find themselves living with chronic conditions in their 70s and 80s. You want to live where first-class healthcare is available. Check to see what hospitals and doctors are in the area before moving. You should also find out if medical care providers accept Medicare. Consider the cost of a nursing home or home care in your potential new community. Some areas of the country have much higher costs than others.

Reference: Nasdaq (Aug. 9, 2019) “Don’t Relocate in Retirement Without Answering These 5 Questions,”

Having a Generous Spirit is a Good Thing for Many Reasons

Many people give generously throughout the year, for birthdays, to help children or grandchildren with college costs or just because they want to help family or friends. However, according to the New Hampshire Union Leader’s article “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes.”

Lifetime giving means that you are more involved with giving, than if your giving occurs after you have died. Perhaps the best part of gifting with warm hands, is that you are able to enjoy seeing the recipient (donee) benefit from your gift. It’s a good feeling to see a person have his life enriched by your generosity.

It should also be noted that sometimes, giving away something can be a way of liberating yourself. With less property, there’s less for you to manage, insure or provide upkeep.

If you die with no will, the intestacy laws of your state will determine who gets what. With a will, you have the opportunity to make your intentions known clearly. However, since you will not be alive, you won’t be able to see the actual transfer of property. A beneficiary might decide that they don’t want an asset. It is also possible that someone who always told you that he loved the painting in the foyer of your home, may decide to sell it, instead of keeping it.

Lifetime giving lets you react to changing circumstances and provides some control over how your assets are distributed.

After your death, your property and your estate may go through probate, which in some states can be a lengthy process. Lifetime giving also reduces the costs associated with probate and estate administration, because they won’t be included in your estate at the time of death. Assets that come out of the probate estate, reduces the likelihood of estate creditors or dissatisfied heirs. Lifetime gifts are private, while probate is public.

However, there are also tax advantages. If your gifting program is structured correctly by an experienced estate planning attorney, income and estate taxes can be decreased. Generally, a gift is not taxable income to the donee. However, any income earned by the gift property or capital gain subsequent to the gift, is usually taxable. The donor holds the responsibility of paying state or federal transfer taxes imposed on the gift. There are four taxes to be aware of: the state gift tax, the state generation-skipping transfer tax, federal gift and estate taxes and the federal generation-skipping transfer tax.

Many people give, because they want to support charitable causes or help friends and family enjoy a higher quality of life. The need to reduce the size of an estate to lower estate taxes is now less prominent, since the federal estate tax exemption is so high. It should be kept in mind that the new tax laws regarding federal estate taxes end in 2025. That may seem far away, but it will be here soon enough.

Another way to give, is to help with college expenses. Any gift must be made directly to a qualified institution. Similarly, if you’d like to help a friend or family member with medical expenses, a gift needs to be made directly to the healthcare provider. Not only are these types of transfers exempt from federal gift and estate taxes, but they are outside of the $15,000 annual gift exclusion gift you can make to an individual in any given calendar year.

This is a simple overview of gifting. An estate planning attorney should be consulted to create a plan for giving, that aligns with your overall estate plan and tax management plan.

Reference: New Hampshire Union Leader (April 7, 2019) “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes”