By: Randall A. Denha, J.D., LL.M.*
Estate Planning is not always about transfers at death. While there are many tools you can use to protect your assets and ensure your loved ones receive as much of your legacy as possible, gifts inter-vivos — during life — are one of the simplest and most useful. Incorporating a schedule of gift giving into your estate plan can shield your assets from long term care expenses and other creditors and decrease your estate tax liability as well. However, like many aspects of estate planning, inter-vivos gift giving is not a last minute solution to an asset protection problem. It must be undertaken far in advance in order to be effective.
Under IRS rules, the gift tax and estate tax are linked in that they provide a unified exclusion that is nontaxable. The combined gift and estate exemption is currently $5,250,000 per individual (scheduled to increase to $5.34 million in 2014). Because this exclusion is unified, however, inter-vivos gifts would not be a particularly helpful estate planning measure if it were not for one thing: you can give gifts of up to $14,000 per donee per year without invading your unified exclusion. This means that if you have three children, you can give each child $14,000 each year — outright or in trust — without reducing your estate tax exclusion and without incurring gift tax liability. For married couples gifting joint property, the amount is $28,000 per year per donee. In addition, generally, several other types of gifts are completely tax free and do not count toward your exclusion regardless of size:
- Gifts to your spouse
- Payment of school tuition for a loved one
- Payment of medical expenses for a loved one
- Donations to political organizations
- Donations to charities
While it is important to plan your gifting so that you keep enough of your own assets to provide for your needs and maintain your desired standard of living, inter-vivos gifting in conjunction with other estate planning mechanisms can help you accomplish your donative and charitable goals, protect your property from creditors and avoid or minimize estate tax.
*RANDALL A. DENHA, J.D,, LL.M., principal and founder of the law firm of Denha & Associates, PLLC with offices in Birmingham, MI and West Bloomfield, MI. Mr. Denha continues to be recognized as a “Super Lawyer” by Michigan Super Lawyers in the areas of Trusts and Estates; a “Top Lawyer” by D Business Magazine in the areas of Estate Planning; a Five Star Wealth Planning Professional and a New York Times Top Attorney in Michigan. Mr. Denha can be reached at 248-265-4100 or by email at email@example.com