Forbes on Gifting - When an Inheritance Can't Wait

June 24, 2013

One of the most common questions that local families ask related to estate planning and assets protection involve gifts: Whether to give them, when to give, how much, and in what form.

Of course, no two situations are identical, and so it is impossible to list a set of rules regarding when and how large-scale gifting should be done in every case. However, a Forbes article this week on the topic provides a good starting point for New York families to familiarize themselves with the basic concept and major issues to consider.

Helping Children Now
Providing significant gifts to others while alive--usually adult children--is often pursued for one of two reasons: (1) As a prudent step to save on estate taxes; (2) In order to help children who need an immediate financial boost. The underlying purpose for the gift affects the manner in which its given, when, and how.

For one thing, federal tax rules allow a married couple to give $28,000 away annually without a tax burden. Therefore anything over that may implicate gift taxes, requiring discussions about alternatives forms in which to give the assets to minimize paying in to Uncle Sam. Importantly, providing in-kind gifts for tuition and/or medical expenses do not apply to these gifting limits. In other words, paying directly for education expenses, for example, is much more advantageous than providing cash to be used for such payments.

The form of the gift is critical. Perhaps your child could use cash, but providing a cash gift may provide less benefit than handing over an asset that may appreciate in value, like stocks or bonds. Depending on you (and your children's tax bracket), transferring an asset like that may lower the family's overall tax burden when the asset is sold. In addition, depending on the age of the children receiving the gift, the "kiddie tax" issue must be considered. Essentially, this means that "unearned income" from children (under 19 or under 24 if in college) is taxed at the parents rate (instead of their own, presumably lower, rate).

Finally, it is also vital not to forgot how much a gift will affects your own long-term planning. It is not prudent to transfer too many assets, placing one's own retirement on less secure footing. Keeping a holistic approach to the gift is critical.

The Forbes article explicitly explaining that have the aid of an estate planning attorney is absolutely critical. For help on these issues in New York City, Albany, White Plains, Fishkill, and any other community throughout the state, please reach out to our team today.