Lifetime Gifting: The Overlooked Piece of Estate Planning
An easy but often overlooked piece of estate planning.
When my clients come to me for an "estate plan," they usually mean a will, occasionally in conjunction with a living trust. Yet as I point out in our meetings, there are many other ways that one disposes of one's estate, and some of them don't happen in a lawyer's office. A good estate plan should zoom out to account for these other means of asset transfer, including beneficiary or payee on death designations, rights of survivorship, etc.
One option that is commonly overlooked is lifetime gifting. Did you know you can give up to a certain amount, called the annual gift tax exclusion amount, every year to as many people as you'd like? For 2024, this exclusion amount is $18,000, so you can give $18,000 to as many people as you'd like this year without owing any federal gift tax. If you're married, your spouse can do the same, so combined, the two of you can give up to $36,000 per person per year.
Lifetime gifting has several benefits. First, while I hate to talk myself out of work ;), lifetime gifting is as simple as writing a check, so beyond working out a gifting strategy, you may not require legal assistance to make outright lifetime gifts. Second, lifetime giving allows you as the giver to not only decide exactly who gets what and apply any preconditions you may wish, but also to have the satisfaction of seeing the recipients enjoy your gifts. Also, depending on beneficiary ages, lifetime gifting may enable you to give the gift when it is most needed, for example, to help a grandchild go to college. And, the recipients get to express their appreciation for your generosity directly to you.
On the flip side, lifetime gifting also comes with a few risks. For most people, the biggest risk is that the money you give away today may be money you need for your own support in the future. Second, while you can revise a will or trust to change distribution plans as life circumstances change, lifetime gifting can't be undone in the same way, much as toothpaste can't be readily put back in the tube. For some people, these considerations may limit the practical value of the gift tax exclusion.
Amounts gifted up to the annual gift tax exclusion amount not only do not cause you to incur gift tax liability now, but they also don't count toward your lifetime combined estate/gift tax exemption. That said, given that the 2024 gift tax exemption amounts are $13.61 million for individuals and $27.22 million for couples, this benefit is not a relevant consideration for 99.9% of us.
Many people may already be doing lifetime gifting in a small, informal way, such as small checks on birthdays, and for some clients, a higher level of lifetime gifting isn't appropriate at this stage of life. For others, however, planned lifetime giving using the gift tax exclusion can be an easy, efficient, and satisfying way to distribute a significant amount of property.