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How Holiday Gift-Giving Can Help Reduce Your Estate Taxes

 Posted on December 23, 2020 in Estate Planning


Even though it is the season for giving, this year has been difficult for many people due to the COVID-19 pandemic. Coronavirus has resulted in not only a global health crisis but an economic downturn as well. Numerous individuals across the country may have felt the impact, whether it is a pay cut or a job loss. Many people may be contemplating their financial future, regardless of their job status. Tax issues can be complex, but there are various ways to reduce estate and inheritance taxes. For instance, Illinois tax laws provide tax benefits if retirement funds are left to designated individuals, and certain kinds of trusts can reduce estate and inheritance taxes that an individual has to pay. There are valuable tools that can be utilized in the estate planning process, and an experienced attorney can assist you in creating a comprehensive estate plan.

Monetary Gifts at the End of the Year

These days, many individuals are now doing their Christmas shopping online as a result of COVID-19. Stores all over the country are temporarily closed in an effort to stop the spread of the contagious virus. For those who have a difficult time picking out the perfect gift, a good alternative is to give money. That way, the recipient can buy whatever he or she likes. Giving money to family members or friends this Christmas can also be a smart tax planning move. Gifting cash now can help you reduce or even avoid estate taxes after you die.

The gift tax is a federal tax placed on certain gifts. It is important to note that the giver of the gift is responsible for paying this tax, not the recipient. The annual federal gift tax limit is $15,000. This means that if someone gives more than that to a person within the same calendar year, he or she will be taxed on the excess. The tax rate for any amount over $15,000 is 40 percent. The federal government also imposes a generation-skipping tax if an individual wants to leave his or her assets to any grandchildren.

For married couples, each spouse can give $15,000 to the same person, increasing the annual tax-free gift to $30,000 per individual. As an example, if a couple has two married children and three grandchildren, each spouse can give up to $30,000 this year to each of the kids, their spouses, and the grandchildren without having to file a gift tax return. That equates to $210,000 in tax-free gifts. This can be done every year without paying a gift tax unless the total of these monetary gifts exceeds the lifetime limit, which is $11.58 million for 2020. The limit for 2021 will be $11.7 million. The $15,000 or $30,000 annual gifts must be made before the end of the year, with checks deposited by December 31.

Ultimately, if a monetary gift to one person is greater than the annual exemption amount, the overage is reported to the IRS, thus decreasing the giver’s lifetime exclusion amount. This in turn reduces his or her estate tax exemption.

Contact a Wheaton, IL Estate Planning Lawyer

It is never too early to think about your estate planning needs. Pre-planning can allow you to document your wishes if something happens to you. In addition, gifting can reduce the estate taxes you may be required to pay on your assets. A knowledgeable DuPage County estate planning attorney at Stock, Carlson & Duff LLC will explain how giving monetary gifts can impact your estate, including any tax implications your generosity might have. With over 40 years of legal experience, helping families throughout DuPage, Cook, and Kane Counties, we have guided our clients through the estate planning process to help them make informed financial decisions that are in their best interests. To arrange a confidential consultation, call our office today at 630-665-2500.



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