How Can Lifetime Giving Lower Taxes?

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KS and MO Attorney Kyle E Krull

Written by Kyle Krull

Attorney & Counsellor at Law Kyle Krull is president of the Law Offices of Kyle E. Krull, P.A., an Estate Planning Law Firm located in Overland Park, KS. Estate Planning Attorney Kyle Krull has provided continuing education instruction to attorneys, accountants, and financial professionals at local, state, and national programs.

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POSTED ON: May 21, 2024

Lifetime giving can reduce tax burdens for the giver and for the beneficiaries.

Strategic giving to children while alive can reduce tax liability.

Parents and grandparents tend to want to support the dreams and goals of their children and grandchildren.

Sometimes, this can involve words of encouragement or checking to make sure homework assignments are completed.

Higher tax bills can become an unintended consequence for those who can afford to give financially to their children and grandchildren during their lifetimes.

According to a recent Kiplinger article titled "Three Ways to Give to Your Kids Tax-Free While You're Still Alive," there are various estate planning strategies for minimizing taxes when giving to your heirs while you are alive.

Giving to loved ones while you are alive can support their goals.

Giving directly to universities or hospitals to pay for tuition or medical treatment does not count against the annual or lifetime gift and estate tax exclusion.

How Can Estate Planning Eliminate Capital Gains Tax for an Adult Child?

A key aspect of estate planning is understanding tax breaks.

For appreciated investments, capital gains taxes can be extensive.

When inherited, assets with increased value are typically given a break on capital gains taxes if the IRS calculates the capital gains tax based on the date they were inherited rather than when they were originally purchased.

This higher valuation is known as a "stepped-up cost basis."

As a result, capital gains taxes are reduced when the asset is sold because they are calculated using the increased value.

Sometimes, transferring property while you are alive can give your adult children a break on capital gains taxes.

For this to happen, your heirs must have a taxable income below a certain threshold.

If your adult child is single and their income is below $47,025 or your child is married and their combined income is below $94,050, your adult child may owe nothing in capital gains taxes when the asset is sold.

This tax break applies only to capital gains taxes, not estate taxes.

Which Estate Planning Strategy Maximizes the Gift Tax Exclusion?

The gift tax exclusion allows individuals and married couples to maximize their tax efficiency when giving financially to a child.

For example, individuals may provide money for a house down payment or college education.

How much is the gift exclusion amount for 2024?

Individuals can give $18,000 per recipient this year, and married couples can give $36,000 per recipient.

Gifted amounts above these limits will be counted against the current $13.61 million lifetime federal exclusion per person.

How Can Direct Payments Impact Giving to a Child in My Lifetime?

If you make direct payments to institutions for medical, educational, or other expenses, these are excluded from the annual gift limit and the lifetime exclusion.

In short, larger financial obligations can be supported without cutting into the giving allowances of the donors.

It allows parents and grandparents to provide for needs as they arise rather than leaving funds after their children are more established financially.

By giving while alive, individuals can also reduce their taxable estate.

Plus, if you are giving while you are living, then you are knowing where it is going.

Such is the joy of "warm hands" giving, whether to loved ones or in support of your church.

What are the Key Takeaways Regarding Tax-Free Giving?

Numerous opportunities exist for tax-efficient giving while you are still alive, both through outright gifts and payments to institutions.

Work with an experienced estate planning attorney to utilize lifetime gifts and inheritances to reduce your tax liability while supporting your children and grandchildren.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.

Reference: Kiplinger (April 10, 2024) "Three Ways to Give to Your Kids Tax-Free While You're Still Alive"

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