When people grow older, they naturally begin to start thinking about their estate, their Will, and the best way to pass on their wealth and possessions after they die. For some people, this area brings to mind questions about lifetime gifting. Understanding the concept and benefit of gifting, and how gifting works, can help you decide what to do with your assets, and to understand whether gifting is right for you.
What is inheritance tax?
Before being able to fully understand the benefits of gifting, one must first understand the application and operation of inheritance tax. Federal Estate tax is imposed upon estates that exceed a certain value (currently 5.49 million). Threshold amounts to determine which estates qualify for inheritance tax will vary from one year to the next. The Pennsylvania State Inheritance Tax Assessment is calculated without regard to a threshold amount figure, and may be avoided (or reduced) – with a gift made at least one year prior to death.
What is gifting?
Gifting is the practice of transferring wealth to friends and loved ones before you die. People who have a substantial estate may also reduce their inheritance tax, by giving away a portion of their assets before they die. Current law allows you to give away up to $14,000 per year, without paying gift tax. Spouses can each give up to $14,000 to the same recipient and still stay within the annual exclusion threshold. Together, a married couple can give $28,000 to each donee without incurring the gift tax. Most tax professionals recommend that married couples give money in the form of 2 separate checks, each signed by one of the spouses, to avoid any confusion. This amount can change over time, so the best way to ensure that a gift is tax-free, is to consult with a lawyer before giving money away.
Why should you give away your wealth before dying?
There are many benefits to giving away your wealth before dying. Gifting over time can bring down your wealth, to a point below the federal inheritance tax threshold.
Gifting allows you to assist loved ones in need, possibly done via a trust that protects the grantee and which could restrict immediate access to assets.
- Gifting can help ensure that your funds stay within your family, or within a small circle of friends.
What else can you do to avoid paying taxes on an inheritance?
- There are many ways to seek to avoid (or reduce) paying inheritance tax on an estate. Establishing an irrevocable trust, gifts to charity, re-titling assets – all are possible measures to lessen the bite of inheritance tax. The method that you choose will depend upon the size of your estate, along with an analysis of your needs and priorities. Your lawyer can help you decide which method is right for you. At Covelli Law Offices, we help clients to intelligently plan for the disposition of an estate. If you would like to ensure that your estate assets will be properly and efficiently distributed when you die, make arrangements today by contacting Covelli Law Offices. To schedule an appointment call us at 412-653-5000.