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No Good Deed Untaxed: Coordinate Gifting Strategy With Estate Plan

During the festive holiday season just past, many people were keenly focused on the process of giving gifts to their loved ones. If you’ve given a large gift of wealth to a loved one, or are contemplating giving one, it is wise to consider the ramifications of this gift, and ensure that your estate plan still accomplishes its stated goals, even after you’ve provided this gift.

Someone might choose to give a large gift of wealth for a variety of reasons. Perhaps you give a child a large sum of cash on the occasion of his or her wedding, or give your house to a child who lives nearby when you decide to “downsize” your living arrangements. Clearly, large gifts can have tax ramifications. In 2013, the annual federal gift tax exclusion was $14,000. With that in mind, if you are considering a large gift, you may want to discuss your options with a professional, to explore ways to minimize or avoid gift tax issues. Depending on your situation and the circumstances of the gift, you may be able to structure the gift over a period of years, or take other steps to help avoid tax over-exposure. Using smaller gifts may also reduce potential estate tax exposure.

Whether you give a large gift in one piece, or separate it into smaller gifts for tax planning purposes, you should use the occasion of providing this gift to revisit your estate plan. If one of your estate planning goals is to provide an equal distribution to your children, or a set percentage, the giving of this gift probably means that you will need to amend your will or living trust to reflect the gift.

As an example, take the scenario of a couple with two children, who give a gift of $25,000 to their daughter when she marries. Their son never weds and never receives any similar gifts. If the parents wish to leave their wealth to the children half-and-half, their wills or living trust likely will need to reflect the gift to the daughter and subtract it from her distribution. The amendment should make clear that the uneven post-death distribution is the result of the daughter’s lifetime gift. Families can pursue similar provisions when a beneficiary receives a loan. In that case, the estate planning documents would indicate that the borrower-beneficiary’s portion should be reduced by the amount of the loan’s outstanding balance.

One of the most substantial benefits of acquiring wealth is the ability to provide for loved ones, or aid them in times of difficulty. However, if your estate planning goals also focus on providing equal distributions to your loved ones, it is important that your living trust or will accounts for the lifetime gifts and loans you provide, in order to accomplish that goal. To ensure your plan will achieve the objectives you desire, consult estate planning attorney Daniel J. Krause of Estate Law Partners, LLC. His extensive experience will all types of estate plans and trust agreements to help you reach your goals. Contact Attorney Daniel J. Krause today.

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