During your lifetime you will likely work hard, save your money, and invest carefully to build up a decent financial nest egg. Along with planning for financial security during your retirement years, you may also want to pass down some of that nest egg to children, grandchildren, or other loved ones. If you do intend to gift money or other assets to loved ones, deciding when and how to make those gifts is important. A Murfreesboro estate planning attorney at Bennett | Michael | Hornsby discusses making gifts in your Will versus making them while you are alive.
Making Gifts in Your Will
When most people think about passing down assets they imagine doing so as bequests in their Last Will and Testament. You certainly can make
gifts in your Will and there are some good reasons to do so, such as:
- Tax advantages. Making gifts while you are alive can offer some important gift and estate tax advantages; however, there are also some important tax benefits to making gifts at the time of your death. One of those is taking advantage of the “stepped-up” basis in property that can directly impact future higher capital gains taxes the beneficiary may need to pay.
- Preventing family conflict. When you make a gift during your lifetime you typically need to consider the potential conflict that gift will cause within the family. Gifting in your Will offer two important advantages over lifetime gifting. First, you will likely gift equally among similar beneficiaries (children or grandchildren, for example). Second, you will not be here to deal with any family conflict that does result.
- Planning for an emergency. No matter how financially secure you think you are, there are no guarantees when it comes to the future. Any number of unexpected factors or events could cause you to suddenly find yourself needing assets you gave away years ago. Waiting until you are gone to gift assets in your Will ensures that you will have access to those assets if you need them in the future.
Making Gifts While You Are Alive
Gifting assets in your Will is always an option; however, there are also several good reasons to make gifts while you are alive, including:
- Personal reasons. Sometimes, the best reason to gift assets while you are still here is simply to because you can enjoy making the gift and watching the beneficiary enjoy the gift. You also get the benefit of being able to provide the beneficiary with guidance and wisdom regarding how to use the assets you gifted.
- Avoiding gift and estate taxes. Every decedent’s estate is subject to federal gift and estate taxes based on the value of qualifying gifts made during the decedent’s lifetime plus the value of the decedent’s estate assets remaining at the time of death. Making gifts prior to your death can reduce your estate’s exposure to estate taxes. For example, the annual exclusion permits each taxpayer to make gifts of up to $16,000 (as of 2022) to an unlimited number of recipients each year without those gifts counting against the taxpayer’s lifetime exemption, effectively allowing you to pass down assets tax-free.
- Protecting assets. Whether you are concerned about creditors, a spendthrift beneficiary, or even the spouse of a beneficiary, the wise choice may be to gift assets while you are alive through a trust. You can use the type of trust and the terms of the trust to protect the assets you gift.
Contact a Murfreesboro Estate Planning Attorney
If you have additional questions or concerns regarding how and when to gift assets in your estate plan, consult with an experienced Murfreesboro estate planning attorney at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.
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