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How giving gifts can help testators avoid taxes and maximize their legacy

On Behalf of | Feb 28, 2024 | Gift Tax |

There are numerous estate planning tactics that may work for people in a variety of different circumstances. For those with significant personal resources, their main concerns when estate planning may include a desire to have a positive impact on their chosen beneficiaries and concern about their resources going toward estate taxes.

Those who have millions of dollars in personal property when they die could end up losing part of their estates to the federal government due to estate tax obligations. In some cases, the personal representative of someone’s estate may need to pay 40% of the estate’s total value in federal taxes after someone’s death.

Therefore, planning to minimize or eliminate estate tax liabilities is often a top priority for those potentially at risk of estate taxes. Gifts made throughout someone’s golden years can both help reduce tax risks and give testators the satisfaction of witnessing beneficiaries as they make use of a portion of their inheritance.

Gifts often require careful planning

The decision to make large gifts to beneficiaries can give someone joy, as they can witness their loved ones benefiting from what they might otherwise receive after the testator’s death. The tax benefits of structured gifting are also worth considering.

There are a few reasons why testators making planned gifts during their retirement years need to plan those gifts very carefully. The first is the possibility of gift tax. One individual can give another person up to $18,000 worth of cash and property each year. Gifts over that value could generate gift tax liability. Many testators with large estates specifically maximize the gifts that they make each year to diminish the value of their holdings as much as possible.

The second consideration for gifts and taxes when planning an estate is the impact gifts could have on estate tax liability. The last three years of gifts made before someone’s death add to the total value of their estate. People need to ensure that they successfully diminish their resources through other strategies, such as moving assets into a trust. Otherwise, the gifts that they believe should reduce the value of their estate might push it over the threshold and lead to estate taxes.

Learning more about estate taxes, gift taxes and tax planning strategies may benefit those with sizable personal holdings who hope to minimize what their loved ones lose in taxes after they die. Seeking legal guidance is a good way to get started.