The reasons for giving are many, and the rules are just as numerous. Giving the ideal present offers happiness, and financial gifts may jumpstart the savings of a loved one or lessen the amount of your estate—or both. Include a successful gift strategy as part of your overall financial plan to minimize unforeseen repercussions of financial contributions. This necessitates a conversation with your adviser to evaluate if it is appropriate to provide now or later.
Senior vice president Aaron Thiel, a GenSpring wealth strategist at Truist Wealth, explains that the motivation for gifting is frequently emotional, not monetary. Thiel said enabling family members to do particular things with that money—to achieve the family’s vision, values, and purpose—and to see it happen while you’re still living, that’s really profound.
Gift tax 101
Gifts may be subjected to taxes, but there are exceptions. In 2024, the IRS enabled you to make tax-free gifts of up to $16,000 each calendar year to any recipient. A married couple may donate up to $32,000, including cash and the fair market value of presents such as real estate, securities, and artwork.
Exclusions from this restriction include:
Direct tuition payments to the educational institution are excluded. Therefore, you might pay for your grandchild’s tuition but not housing, food, or supplies.
Medical costs paid directly to a medical practitioner or a health insurance company on behalf of another are also excluded.
Presents for your spouse.
The lifetime gift and estate tax is the last exemption. In 2024, the cap will be $12,06 million, or $24,12 million for couples. This is the maximum amount you may contribute during your lifetime or pass on to your heirs without incurring estate taxes.
If a gift to a single individual exceeds $16,000 in a given year, the excess can be used for this exemption. Your estate can also use any unused exemption to lessen or eliminate estate taxes upon your passing.
Gifting methods to consider
You have several alternatives when presenting a monetary gift. Here are some of the most frequent:
Cash: This is generally the starting point for gift giving, as it is simple and direct. You may contribute cash, make a check, or transfer funds between bank accounts.
Transferred investments such as stocks: Your cost basis is transferred together with the gift, which influences the capital gains tax if the beneficiary sells the asset. What to know: You provide a stock you purchased for $10 per share. The recipients of the shares sell each share for $100, and they are taxed on their $90 per share gain.
529 savings plan: You may “superfund” five years’ worth of yearly donations at once, which is a terrific way to assist a loved one in getting a head start on college costs.
You contribute $80,000 (or $160,000 with your spouse) to a 529 plan. However, you cannot give more presents to the same individual for the next four years.
Trust: A variety of trust structures allow you to have greater control over the disbursement and use of funds.
You may want to fund specific activities, such as entrepreneurial endeavors, or you may want them to receive the money at a certain age. A trust allows your funds to be dispersed as you wish.
These occasions must not exceed the giving limitations (or they will be counted toward your lifetime gift and estate tax exemption).