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Estate Planning FAQ 8

What about lifetime gifts?

Deciding whether to make gifts to children or grandchildren while a parent is alive or to leave assets to them after death is not always easy and like so many other things in the estate planning area, depends upon personal circumstances. Parents naturally want to help their children and to see them succeed. However, parents also need to secure their own financial futures, particularly in retirement, when there can be expensive costs for medical and other care needs without income or assets to cover those expenses. Moreover, parents sometimes need to fight the urge either to give with strings attached or to give so freely as to take from their children the incentive to develop responsibility and self reliance.

Three practical considerations in favor of making gifts now might include first, that a smaller gift now when it might be needed could be of greater value than a larger bequest later when the recipient might not need it, second, that the donor or person making the gift gets to enjoy while alive seeing the benefits to the done or recipient, and third some early giving may have beneficial tax consequences due to reduction in the size of the taxable estate of the donor. For those who elect to make gifts and can afford to do so, they can give up to $13,000 per year per recipient without any gift tax consequence. This is called the annual exclusion amount. A married couple can make gifts of up to $26,000 per recipient per year. I addition, gifts which take the form of direct payment of medical bills to hospitals and doctors or education expense to the educational institutions can be made without gift tax issues. Gifts to plans qualified under Internal Revenue Code Section 529, called 529 Plans, can help fund the cost of education for grandchildren and, depending upon the plan, may allow the grandparents to retain significant control over the gift until it is actually used. Interest and dividends earned on the assets in the 529 plan accumulate free of income tax provided that the funds are eventually used for the grandchild’s education expense.

In addition to the annual exclusion gifts and gifts for education and medical care, gifts that are taxable can be made without actually incurring a tax so long as the taxable gifts are kept under allowable exemptions.

There are rules relating to income tax basis which may bear upon whether to make gifts of cash or appreciated assets and depending upon the health and financial condition of the persons contemplating making the gifts, there may be Medicaid qualification issues to consider. A discussion about whether making gifts, timing of gifts and what type of gifts, if any, should be made should be included as a part of overall integrated estate planning.

Call (732)-972-1600 today to speak to one of our skilled Estate Planning Attorneys. Located in Manalapan (Monmouth County, NJ), Cranford (Union County, NJ) and Midtown Manhattan (New York, NY); Drescher & Cheslow represents clients throughout the State of New Jersey & New York including but not limited to Mercer, Middlesex, Monmouth, Essex, Somerset, Morris, Hudson and Ocean counties.

Ten Frequently Asked Estate Planning Questions
First: What happens if someone dies without a Will?
Second: What is probate and how much time and money does it cost?
Third: What are the different ways property can be owned and what problems can these different forms of ownership create?
Fourth: Must a parent treat all children equally?
Fifth: How should property be left for someone unable to manage it?
Sixth: Who should be named Executor or Trustee?
Seventh: What about taxes?
Eighth: What about lifetime gifts?
Ninth: How can clients safeguard their affairs in the face of physical or mental infirmity?
Tenth: How are health care decisions to be made if a person becomes unable to express his or her wishes?

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