Christmas is a time when we give gifts to our relatives, friends and other important people in our lives. We want to show our love and appreciation for them. Some of these gifts are very valuable, costing thousands of dollars.
Some high-value gifts are subject to the federal gift tax. However, there are exclusions from the federal gift tax that you can use to your advantage when estate planning.
Gifts and the gift tax
You will be subject to the federal gift tax if you give gifts totaling $16,000 in 2022. The good news is that the gift tax exclusion will increase to $17,000 in 2023.
You can give gifts to as many people as you want without being taxed if the value of each individual gift does not exceed the gift tax exclusion. Some types of gifts can be given at unlimited amounts without ever being subject to the gift tax.
This makes gifting a key part in a well-rounded estate plan. You may want to consider making the following gifts a part of your wealth transfer strategy.
Gifts worth giving
You can pay a loved one’s medical bills at any price without being subject to the gift tax. These payments must go directly to the physician or medical provider to whom they are owed.
You can pay a loved one’s educational expenses. You can establish a 529 to pay for qualified educational expenses or you can pay tuition directly to the school of your choice. These gifts are not subject to the annual gift tax exclusion.
And, as stated, you can give your loved one any gift worth $16,000 or less this Christmas or worth $17,000 or less in 2023 without being subject to the gift tax.
Gifts as part of an estate plan
You may choose to leave an inheritance to a loved one through a will or trust. These are good estate planning vehicles.
Still, you do not get to see your loved ones enjoy an inheritance in a will or trust. Also, you have no control over how a loved one spends their inheritance, with some exceptions for specific bequests or contingencies in your will or trust.
You can gift your loved ones items that you want them to have. You can pay a loved one’s medical or educational expenses. Gifting allows you to see how your loved one uses the gift while you are still alive.
Wills and trusts have a part in your estate plan. Gifts can have a part in your estate plan as well. These are some ways you can ensure your loved ones are provided for both while you are alive and after your death.