Gifting Strategies

Why can’t I just give my assets away?

No one is saying you can’t give them away, but there are tax laws that will deplete the amount you would originally want to gift. Without a proper strategy the gift tax can take a bite out of your gift.

What is the gift tax?

The gift tax is a federal tax that applies to property or money that is gifted while the donor is living. On the other hand, there is also the federal estate tax which applies to property received by others (with spouses as an exception) after a person’s death.

The gift tax applies to the person giving the gift. Thus, the recipient is under no obligation to pay the gift tax, however other taxes may apply. Meanwhile, the federal estate affects the estate of the deceased and can reduce the amount given to heirs.

Though any gift can be considered taxable, there are some exceptions. For example, gifts that pay for tuition or medical expenses that you pay directly to a medical or educational institution for someone else aren’t considered taxable. If you give a gift to a spouse who is a U.S. citizen, to a qualified charitable organization, and gifts to a political organization those are not considered taxable.

More details on the gift tax and be found here.

What gifting strategies are available to me?

Luckily, there are several gifting strategies you can utilize, each with its own unique features and drawbacks.

For example, instead of making an outright gift, there is the option of using a charitable trust. With a charitable trust, you gift is moved to a trust. The recipient of the gift draws the income from this trust. Then, upon your death, your heirs will receive the principal with little or no estate tax.

If you would prefer to retain an income interest in your gift, you could use a pooled income fund, a charitable remainder trust, or charitable annuity trust. With these strategies, you can receive income generated by your gift and the recipient gets the principal upon your death.

And lastly, you could purchase a life insurance policy and name the charitable organization as the owner and beneficiary of the policy. This would allow you to make a large future gift at a lower cost.

For more in-depth information about the advantages of each option, please check out the chart on our article here.

If you would like more information about the gift tax, or gifting strategies please call our office today at 201-342-3300. We would be happy to discuss it with you.