OUR SERVICES

Gift Tax Planning: Strategies for Efficient Wealth Transfer

Discover essential strategies for effective gift tax planning with insights from the legal professionals at Wood Law Group. Learn how to navigate the complexities of federal gift tax laws to protect your assets and secure your financial future.

Understanding Gift Tax Planning 

Gifting money or property to your loved ones is an act of generosity. However, your noble gesture could also lead to gift tax liability, so proper planning is needed to shield you from the additional expense.

Gift tax planning is a critical aspect of estate planning and management that often goes overlooked. This process is imperative for individuals who wish to transfer assets to others without receiving anything in return or incurring additional expenses.

There are legal exemptions that make it possible for people to avoid gift taxes. Effective Gift tax planning requires an in-depth understanding of these laws and how they can be applied to an individual’s circumstances. That’s where we come in.

At Wood Law Group, we pride ourselves on our ability to provide personalized solutions that align with our clients’ goals and offer peace of mind today and in the future. We can help you navigate the gift tax planning process to minimize or eliminate your gift tax liability.

Below, we explain how gift taxes work and some common gift tax planning strategies that could help you achieve your goals and empower you to make informed decisions.

Gift Tax Explained

A gift tax is a property transfer tax imposed when a living person transfers money or assets to another without accepting any payment or consideration in return.

If you sell an item for less than its full value or provide interest-free loans, you could also be deemed to be making a gift. As such, before engaging in such transactions, it would be wise to consult a gift tax planning attorney who can assess your case and advise you on your possible gift tax liability.

The gift tax is not to be confused with other property transfer taxes, such as inheritance and estate taxes. These taxes are payable after a person’s death by those who inherit their assets or from their estate respectively.

If you’re a Nevada resident, you’ll be happy to know that there is no inheritance tax in Nevada. The state does not also charge gift or estate taxes. However, the state’s legal position does not eliminate the possible estate tax liability under federal law.

The federal gift tax applies to gifts in different forms, including

  • Cash or checks
  •  Real estate 
  •  Personal property items such as jewelry 
  • Stocks or company shares.

However, the tax is only payable if the value of the gifts exceeds the exclusion or exemption thresholds set by the Internal Revenue Service (IRS).

Federal Gift Tax Exclusions and Exemptions

Certain types of gifts are exempted from the federal gift tax, no matter their value. They include 

  • Gifts to a spouse
  • Tuition paid for someone else (it must be paid directly to the educational institution and not the individual)
  • Medical expenses paid for someone else (It must be paid directly to the hospital or medical institution and not to the patient or any other individual)
  • Donations to political organizations.

Every individual is also entitled to two types of gift tax exclusions: the annual exclusion and the lifetime exclusion.

The Annual Exclusion

Individuals can give a certain amount to as many people as they wish each year without incurring income tax or liability. This is known as the annual gift tax exclusion, which is adjusted periodically for inflation.

The annual exclusion amount for individuals in 2024 is $18000 per recipient (and twice that amount for gifts given by married couples). For example, if you give each of your family members gifts valued at $18000 or less, the gifts fall within the exclusion, so you would not be liable for gift tax and would not need to pay gift tax or file a gift tax return.

A gift tax return may be required when a gift’s fair market value surpasses the annual exclusion. However, filing a return doesn’t always mean you will owe tax. Rather, the excess amount will be counted against your lifetime gift tax exclusion.

The Lifetime Exclusion 

The lifetime exclusion or exemption is the total amount ($13,610,000 for 2024) you can gift over your lifetime without having to pay gift taxes. Once you exhaust your lifetime exclusion, you may begin to owe gift taxes.

The lifetime exemption is integrated with the estate tax exemption to form a combined gift and estate tax exemption. Usually, estate taxes are only paid by estates valued above the exclusion threshold, as stated above. But if you use a portion of your lifetime exemption on gifts during your lifetime, that reduces your estate tax threshold and increases your chances of estate tax liability.

You must, therefore, be strategic when you use the lifetime exemption to avoid gift taxes so you don’t incur future estate taxes that could affect your beneficiaries’ inheritance.

Strategies for Gift Tax Planning

The most common strategies for gift tax planning involve leveraging the annual and lifetime exclusions over a long period.

For example, you could give gifts to your beneficiaries every year for several years, valued below the annual exclusion amount. This would help you to preserve your lifetime exclusion for estate tax purposes.

If you further wish to reduce the value of your estate for estate tax purposes, you could also consider educational and medical gifts. When done properly, such gifts are a prime example of why giving is better than receiving.

Another common gifting strategy is putting your assets in a trust for the future benefit of your loved ones. With the right structure, trusts (with or without the Reverse QTIP election)  can be used to avoid estate taxes. So even if funding the trust costs you a portion of your lifetime exemption, the assets in the trust would pass directly to those you choose without estate tax issues.

Determining the appropriate gift tax planning strategy could be difficult, considering the multiple options available. Sometimes, you may need more than one strategy for comprehensive protection. That’s why it is crucial to have top-tier legal guidance throughout the process so you can fully understand the implications of each strategy before you decide. 

The most common strategies for gift tax planning involve leveraging the annual and lifetime exclusions over a long period.

For example, you could give gifts to your beneficiaries every year for several years, valued below the annual exclusion amount. This would help you to preserve your lifetime exclusion for estate tax purposes.

If you further wish to reduce the value of your estate for estate tax purposes, you could also consider educational and medical gifts. When done properly, such gifts are a prime example of why giving is better than receiving.

Another common gifting strategy is putting your assets in a trust for the future benefit of your loved ones. With the right structure, trusts (with or without the Reverse QTIP election)  can be used to avoid estate taxes. So even if funding the trust costs you a portion of your lifetime exemption, the assets in the trust would pass directly to those you choose without estate tax issues.

Determining the appropriate gift tax planning strategy could be difficult, considering the multiple options available. Sometimes, you may need more than one strategy for comprehensive protection. That’s why it is crucial to have top-tier legal guidance throughout the process so you can fully understand the implications of each strategy before you decide. 

How Wood Law Group Can Help

At Wood Law Group, we bring decades of estate planning experience and are committed to helping our clients organize their assets according to their unique goals.

Our gift tax planning services include:

  • Customized Gift Tax Planning: With careful analysis of our client’s assets, we offer tailor-made strategies that minimize their gift and estate tax liability to secure their assets for the future.
  • Estate Planning Integration: Our services extend beyond gift tax planning to encompass holistic estate planning, ensuring that your trusts, wills, and other estate documents are synchronized with your gifting strategies.
  • Adaptive Legal Support: Laws and personal circumstances evolve, so we provide ongoing support and advice that ensures our client’s plans remain valid in the face of any regulatory changes.

 Our dedication and top-notch legal services are geared toward helping our clients settle their estates confidently. We hope to be able to do the same for you.

Contact Us Today

With gift tax planning, you can give your loved ones expensive gifts without worrying about gift or estate tax liability.

However, the process can be complex, which is why strong legal guidance is important throughout.

Our attorneys at the Wood Law Group are fully prepared to offer you experienced legal counsel and quality legal services to help you realize your gift tax planning goals.

So, if you have further questions about the process or want our help to begin, do not hesitate to contact us. Let us help you secure your legacy and minimize your tax concerns as you organize your estate.