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Using Inter Vivos Gifts to Avoid Estate Taxes

Weber Law Oct. 29, 2014

While there are many objectives behind an estate plan, legacy succession is one of the most fundamental.  If you have diligently worked for decades to build a financial legacy, you want your family and other loved ones to receive the bulk of that financial legacy rather than the government in the form of estate taxes.  One strategy for limiting the amount of your estate taken by tax authorities is to use the gift tax exemption.  Effective use of the gift tax exemption during your lifetime can maximize wealth transfer while minimizing tax liabilities.  While the federal estate tax exemption is $5 million dollars, some jurisdictions (no estate taxes in Kansas) only exempt $1 million from state estate taxes.  This blog provides some basic information about using inter vivos gifts for wealth transfer.

If you have the financial ability to make inter vivos gifts, you can gift up to $14,000 per year.  Further, you can make separate gifts of this amount to as many recipients as you wish.  If you are married, you and your spouse can aggregate your exemptions to increase the amount of these gifts to $28,000.  Spouses may gift unlimited amounts to one another during their life or upon the passing of a spouse without liability for gift taxes.

There are ways to increase this gift by paying for the education of those to whom you wish to transfer portions of your legacy.  Payments made for medical or school expenses do not count against your gift tax exemption if the process of making the payments is done properly.  Grandparents also can pay for higher education or the medical insurance of a grandchild without it counting against the annual gift tax exemption.  However, the funds must be paid directly to the college, graduate school or insurance company to avoid being considered toward your annual gift tax exemption.

By using these gift transfer strategies, you can use your legacy to facilitate your loved ones achieving their goals during your lifetime.  If the net value of your estate is $5.5 million, this strategy can permit you to transfer $500,000 that would be subject to federal estate taxes.  This estate planning strategy can prevent future estate tax liability while providing the pleasure of witnessing your financial legacy improve the lives of your loved ones during your lifetime.  Because money used to pay for the education of your children and grandchildren or as gifts to your loved ones will not be available if you have a financial emergency, careful planning is important to ensure that you do not give away funds you might need later.

This blog post provides a simplified overview of potential tax liabilities and gift tax rules, so you should consult with an experienced Wichita estate planning attorney if you have specific question about your situation.  If you have questions about estate planning issues, we welcome the opportunity to talk to you about an estate plan suited to your needs and goals.  We invite you to call us or submit an inquiry form through this website to schedule your initial consultation.