Should Holiday Gifts Be Part of Your Estate Plan?

Gifts under a Christmas tree –– Harrison Estate Law, P.A.

When you are creating your Christmas shopping list, estate planning probably isn’t on your radar. But if you have a larger estate or valuable heirlooms, maybe it should be. Find out you can use holiday gifts to roll out your estate plan and help your loved ones avoid surprises later on.

Annual Financial Gifts Can Avoid Estate Taxes for Large Estates

Most people don’t realize how large their estate really is. Your physical assets like your home, car, vacation property and all your furniture can quickly add up to hundreds of thousands of dollars in assets after your death. Depending on just how big your estate grows, those big-money items could tip the scales and create estate tax consequences for your loved ones in the future.

The Tax Cuts and Jobs Act Puts Estate Taxes on Hold for Most Americans

Right now, estate taxes only apply to the largest estates. Of the 2.7 million people who died in the U.S. in 2018, less than 0.1 % ended up paying estate taxes. That is because, in 2017, the federal government passed the Tax Cuts and Jobs Act, which increased the federal estate tax exemption to $10 million, plus inflation. If you were to pass away in 2019, the first $11.4 million will pass to your heirs tax-free. (For married couples this number is $22.8 million.) Everything beyond that threshold is subject to taxes of up to 40% of the estate. Of course, that’s $11.4 million all told. It includes everything from the investment accounts to the silverware. Still, most families aren’t worried about hitting that threshold any time soon.

Predicting the Political Future Puts Families’ Inheritances at Risk

But that high tax exemption threshold isn’t necessarily here to stay. Nearly all of the estate tax changes in the Tax Cuts and Jobs Act will automatically expire after 2025. Unless the federal legislature decides to extend it, if you pass away on January 1, 2026, the estate tax exemption will have dropped back to the pre-2018 level of $5.6 million (as adjusted for inflation). For middle- to upper-class families, that sudden sunset provision could mean that their heirs will face a sudden surprise as the estate tax law springs back to a much lower exemption threshold.

Changes in the political climate can also create estate tax problems. If future legislatures decide to lower the estate tax exemption or increase the tax consequences for your tax bracket, your family could be the ones facing a bill your estate plan didn’t anticipate and they can’t afford it.

Using Annual Financial Gifts to Remove Tax Uncertainty

That’s why many families with larger estates should use annual financial gifts as part of their estate plan. These gifts to children and grandchildren spend down the family investments and savings, avoiding large estate tax consequences after they pass away. Annual gifts to an irrevocable trust or trusts are often the best way to structure this gift. The amounts are decided strategically taking into consideration:

  • The size of the estate in question
  • Your potential health and financial needs
  • Each beneficiary’s present and future financial needs
  • Each beneficiary’s ability to receive and handle the financial gifts
  • The annual gift tax exemption limit

If you are worried that your estate could bump up against the estate tax exemption now, or in the future, talk to your estate planning attorney now to decide if annual financial gifts may be the answer.

Giving Heirlooms as Holiday Gifts Makes Sure They Stay in the Family

The super-rich aren’t the only ones who can use holiday gifts as part of their estate plan. Sometimes the most important parts of a person’s estate are physical rather than financial. Families of more modest means can use strategic holiday gift giving to protect family valuables and heirlooms.

When someone without substantial investments passes away, sometimes their final expenses can eat up or even exceed their financial assets. While some debts become uncollectible when you pass away, if you don’t have enough to cover your funeral, burial, final medical expenses, and other debts, it can sometimes put your executor in the tough spot of deciding whose keepsake gets sold to pay the debts.

One way to protect your family heirlooms from debt collectors is to give them away to your loved ones while you are still alive. The holidays are a great time to pass on family valuables. Thanksgiving, Christmas, Hanukkah, and other winter holidays often include family get-togethers and gift-giving. If you and your estate planning attorney have worked out who will receive your most prized assets, you can create a memorable holiday by giving your grandmother’s wedding ring or the family silver as holiday gifts and telling their story around the dinner table.

Planning Your Gift Giving to Make the Most of Your Estate Plan

Whether you are using holiday gifts to avoid estate tax or creditors, protecting your assets requires a careful understanding of probate and tax law issues. If you want to make sure your heirs receive what you intend, you should discuss your holiday gift-giving with an experienced estate planning attorney to make the most of what you have.

At Harrison Estate Law, we can help you build a complete estate plan that includes strategies to make the most of your assets. We are happy to help you with setting up a new estate plan or to review and update an existing plan. We will lay out a strategy for annual financial gifts and passing on heirlooms to avoid handing over more of your assets to the IRS or creditors than you have to. Please contact us online or via email or call 352-559-9828 to schedule a free consultation. If you don’t live close to Gainesville we are happy to set up a phone or Skype call.

Categories: Estate Planning