Many families have plans to give their children and grandchildren financial gifts when they die, but it might make sense to gift earlier. Making financial gifts during your lifetime can significantly impact their lives, sometimes when they need it most. It also provides you with the benefit of seeing your loved ones enjoy your gifts.

Perhaps your plan is more financially focused. If you believe your estate might owe estate tax, gifting assets to your heirs throughout your life, rather than waiting until death, can be a powerful way to reduce the amount of taxes ultimately paid by your estate. In 2021, an individual can transfer a total of $11.7 million at death or during their lifetime free from federal gift and estate taxes. Together, a married couple can transfer twice that amount—$23.4 million—free of tax. The current tax law allows you to give certain gifts that don’t count against your gift and estate tax exemption amount. They also don’t require filing a gift tax return, so maximizing these “free” gifts is typically the first place to start with lifetime gifting.

Annual Exclusion Gifts: The annual exclusion allows you to make tax-free gifts up to $15,000 per donor/recipient to an unlimited number of individuals each year.

Medical and Educational Gifts: Another way to make tax-free gifts is to make a direct payment for a child’s or grandchild’s medical or educational expenses. Payments made directly to a medical services provider (for example, doctor, hospital) or an educational institution for tuition aren’t treated as taxable gifts.

529 College Savings Plans: A 529 College Savings Plan is like a retirement plan for education. The main advantage of a 529 plan is that the money grows in your account free of federal income tax. Under federal tax rules, the funds must be used for qualified higher-education expenses, such as tuition, books, and room and board.

Trusts: There is no restriction on the type of property that can be held in a trust. And trusts offer a great deal of flexibility as to when a child or grandchild will ultimately receive the trust benefits. Assets held in trust can be shielded from creditors and arguably provide the best way to ensure a family’s wealth remains with the family.

Creating a strategy that’s unique to your situation requires planning. Contact our office today, and let’s work out an estate plan for you and your heirs.


We’d Love to Help You With Your Financial Plan


This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims-paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.

Adapted from:

Pin It on Pinterest