An important part of any comprehensive estate plan is the distribution of estate assets. Sometimes that requires nothing more than a Last Will and Testament and/or a trust agreement that provides for the gifting of all estate assets upon their death. Lifetime gifting, however, can also be part of the overall distribution of assets in a comprehensive estate plan. Deciding whether to gift while you are alive or only after you are gone can be a difficult and complex decision. The Los Angeles estate planning attorneys at Schomer Law Group, APC offer some factors to consider when deciding to gift while you are alive or after you are gone.
Over the course of your life, you will likely work hard and invest carefully to build up the value of your assets. Part of the reason for doing this is to ensure that you are financially secure and comfortable during your retirement years. For many, however, the hope is that there will be assets left to pass down to children and/or grandchildren after they are gone. For those who are relatively certain they will have significant assets left to pass down, deciding when to pass down those assets becomes an important aspect of estate planning. When you make gifts will have a direct impact on everything from your estate tax liability to your personal relationships with beneficiaries.
Gifting While You Are alive
Deciding to make gifts during your lifetime instead of waiting to make them after you are gone offers some important benefits, including:
- Reducing your taxable estate. Federal (and in some cases state) gift and estate taxes are levied on your estate during the probate process that follows your death. The tax is calculated based on the value of qualifying gifts made during your lifetime plus the value of your estate assets remaining at the time of your death. Gifting during your lifetime (when done carefully and in consultation with an experienced estate planning attorney) can reduce your taxable estate for gift and estate tax purposes.
- Making tax-free gifts. Gifts made during your lifetime may take advantage of the annual exclusion that allows each taxpayer to make gifts of up to $16,000 (as of 2022) to an unlimited number of recipients each year without those gifts counting against the taxpayer’s lifetime exemption that applies to federal gift and estate taxes. Additional exclusions may apply to gifts made directly to pay for tuition or medical expenses of the recipient.
- Protecting assets from spouses and creditors of the recipient. If you are concerned that assets passed down to a beneficiary might be at risk because of a spouse or creditors of the recipient (or recipient’s spouse), making the gift in a trust while you are alive can help protect the assets you gift.
- Ability to guide and advise. Waiting until you are gone to pass down assets means you will not be here to help guide and advise the beneficiary regarding how to manage those assets. Making the gift while you are still her, on the other hand, has the advantage of also passing down your wisdom and financial acumen along with the gift.
- Personal enjoyment. For many, the most important advantage to making lifetime gifts is the simple fact that they are still here to enjoy making the gift and to watch the beneficiary benefit from the gift.
Gifting After You Are Gone
There are also some good reasons to wait to make gifts. Some benefits to waiting to make gifts until after you are gone include:
- Tax advantages. While lifetime gifting can reduce your taxable estate for gift and estate tax purposes, there are also some situations where waiting to gift provides the tax advantage. For example, your beneficiaries may benefit from the “stepped-up” basis in property that typically applies to gifts made after your death, thereby reducing the capital gains tax obligation.
- Maintaining control. Although there are some safeguards you can put in place (such as using the terms of a trust) to prevent the complete loss of control, the general rule is that once you gift assets to a beneficiary you no longer have control over how those assets are used. Waiting to gift means to maintain control.
- Keeping income/assets. Despite careful planning, you could find yourself in a financially insecure position as some point in your life and in need of the assets you intend to gift, making it a wise idea to wait to gift them.
- Conflict. If you want to avoid dealing with family conflicts caused by gifts, waiting to gift until after you are gone is the better option.
Contact Los Angeles Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how and when to gift in your estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.