Seasonal Strategies: Gifting with Tax Purposes in Mind

Trent Bradshaw CFP®, AIF® & Brandon Rogers CFP®, AIF® |

In addition to the emotional high that giving to those you care about brings, giving can now also be a savvy tax move for families with substantial wealth. That’s because both the present value and any potential growth of the transferred assets are removed from your taxable estate.

Although the IRS generally doesn’t care when you make a major gift, the timing can make a big difference to your heirs. Giving a smaller amount when your heirs need it, and while you're still alive, can be more meaningful than waiting to pass on a larger amount after you're gone.

The combined lifetime estate and gift tax exemption are $11.58 million per individual and $23.16 million per couple, and the annual gift exclusion amount is $15,000.


Gift Tax Strategies:

  • The annual $15,000 gift exclusion is separate from the lifetime gift and estate tax exemption. And because annual gifts reduce the size of your estate, they reduce the potential tax liability for your heirs. Further, if you’re married you can “gift split” which means each spouse can gift $15,000 for a total of $30,000.
  • Pay the medical bills for another individual. Medical care includes expenses incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for transportation primarily for and essential to medical care. Medical care also includes amounts paid for medical insurance on behalf of any individual.
  • Pay the tuition bills of a student. Does not include books, supplies, room, and board, or other similar expenses that are not direct tuition costs. You’re allowed to bundle five years’ worth of $15,000 gift tax exemptions into an initial $75,000 contribution to one student’s 529.
  • Donating to a charitable giving vehicle such as a donor-advised fund, private foundation, charitable remainder trust, or pooled income fund offers several obvious benefits. The donations are tax-deductible; they can grow tax-free; you can donate appreciated assets and avoid capital gains tax, and donations are free of gift and estate taxes.
    • Bequest: A bequest is a very common type of planned gift, and it requires special language that must be included in a properly executed will or trust. Please contact us for an amendable gift agreement that documents your intent.
    • Beneficiary designations on IRAs and qualified retirement plans: IRA and retirement plan assets often result in multiple taxes after the death of the plan owner and spouse; therefore, they are best suited for charitable giving. Designating a charity to receive all or a portion of what remains is easy to accomplish.
    • Charitable gift annuities: These plans are contractual arrangements and can be funded by cash or other assets. Only non‐profit organizations can offer these plans, which feature a number of tax benefits.
    • Retained life estates: Personal property may be deeded with the owner retaining the right to continue occupying the premises for life. This gift type results in a current income tax deduction and simplified probate, the sometimes cumbersome, lengthy, and expensive legal process of settling the estate of a deceased person, specifically resolving all claims and distributing the decedent's property. Meanwhile, such a donation would not impact your lifestyle.
    • Charitable remainder trusts: CRTs are irrevocable trusts that actually provide for and maintain two sets of beneficiaries: income beneficiaries (you and, if married, a spouse) and the charities you name. Income beneficiaries receive a set percentage of income for their life from the trust. The second set of beneficiaries receives the principal of the trust after the income beneficiaries pass away. This option offers either fixed (a charitable remainder annuity trust) or variable (a charitable remainder unitrust) income to a donor, spouse, or others such as siblings, partners, children, or grandchildren.
    • Retirement Plans: Donors may name any charitable organization as the successor beneficiary of all or a portion of their IRA, 401(k), or other retirement accounts. The designation is revocable and does not generate a charitable income tax deduction, but distributions from retirement accounts to surviving family members can be subject to both income and estate tax. Directing the balance of a retirement plan to charity removes the most‐taxed asset from the donor’s estate, freeing up other, more favorably taxed assets to give to family and heirs.

Gifting is common during the holiday season so now is the time to consider how a giving strategy fits in with your overall investment plan and to determine whether it makes sense for you to give now or later. We have answers so email or call us at (704) 216-2260.


Adapted from Charles Schwab