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Catholic United Financial > Education > John Tetzloff > Why wait? Make a gift to your heirs now
Creating Wealth Beyond Money Blog

Wealth is a mindset that combines the material and spiritual — rooted in knowledge, wisdom and trust

 

by John Tetzloff
Advanced Case Specialist

Tips to make financial gifts to your heirs while you’re still alive

This past year we conducted approximately fifty estate planning and end of life planning seminars throughout North Dakota, Minnesota, and Wisconsin. One of the most common questions we hear is regarding the gifting of assets during lifetime to children, friends, and charities. While it is always recommended to consult a qualified tax advisor or CPA on tax topics, below are answers to common gifting questions.

What is considered a gift?

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.

Who pays the gift tax?

The donor is generally responsible for paying the gift tax, if any.

What can be excluded from gifts?

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.

Generally, the following are not taxable gifts:

 – Gifts that are not more than the annual exclusion for the calendar year
 – Tuition or medical expenses you pay for someone
 – Gifts to your spouse
 – Gifts to a political organization for its use

What is the annual exclusion amount for gifting purposes?

In 2017, the annual amount you can give each person without having to file a gift tax return is $14,000. This annual exclusion amount has remained the same the past four years. Typically, in the states we serve, there isn’t a gift tax on annual gifts. (In Minnesota, legislators briefly had a 10 percent tax on annual gifts over the $14,000 but it was quickly repealed and is no longer a law.)

If you give more than the $14,000 per year per personal gift, you are required to complete a gift tax return (Form 709) on the amount over the annual exclusion. This amount is applied to your lifetime gift and estate tax exclusion amount, which upon death will be subtracted from the federal exemption amount of $5,500,000 for tax year 2017. Below is an example of this:

In 2017 John made a gift of property to his son, Mitchell. The Fair Market Value of the property was $100,000. John would be required to complete form 709 Gift Tax Return to report to the IRS the amount of the gift that exceeded the annual exclusion amount of $14,000.

 – $100,000 Fair market value of property
 – $14,000 Annual exclusion amount deducted (could also use spouses $14k exemption as well)
 – $86,000 Reported on Gift tax return (No current tax due on gift)

If John dies in 2017, his Estate and Gift tax lifetime exclusion amount of $5,500,000 is reduced by $86,000. Therefore, at John’s death, he would only be able to exempt $5, 414,000 of assets from Federal estate taxes.

There are certainly other factors to consider when making lifetime gifts such as loss of step-up basis and how the gift might affect eligibility to pay for nursing home costs.

As always, if you want assistance or have questions about estate planning please contact your local sales representative and they can provide the tools and information needed to get started on creating or updating your plans.

May God bless you and your families.

Catholic United Financial and John Tetzloff are not permitted to give tax or legal advice. The information given is based on our understanding and interpretation of laws and regulations currently in effect. You may wish to consult your personal tax or legal advisor with questions about your specific situation.