Gift giving to reduce estate tax

On Behalf of | Jun 15, 2016 | Estate Planning

Wealthy Nevada individuals may want to give money as a gift to family members both to benefit those people and to reduce the eventual value of their estate below the federal estate tax exemption, which is currently $5.45 million for individuals and $10.9 million for married couples. Education and health care costs are not counted against a person’s annual or lifetime gift exclusions if paid directly to providers, so this can be another option.

The annual gift exclusion stands in 2016 at $28,000 for a married couple and $14,000 for an individual. This exclusion is per person meaning that a couple with five children could give away a total of $140,000 to them annually. However, people with children who are minors might want to consult with a professional about how best to distribute such a gift if they are concerned about the child coming into too much money at a young age.

Another option is a intentionally defective grantor trust. A donor pays income tax on the income generated from an IDGT, but the assets placed in are removed from the portion of the estate calculated for estate tax. These income tax payments also allow the donor to reduce the value of the estate further.

There are a number of other tools available to wealthy individuals who hope to reduce their estate tax, but trusts can be useful for people who are not wealthy as well. A trust can be a way to pass on assets to a person with greater privacy, flexibility and control over how the assets are distributed. For example, a special needs trust allows a person take care of the costs of services for a relative who may be disabled or incapacitated without jeopardizing that relative’s access to certain governmental benefits.