Whether you want to provide for your heirs now or in the future, there are usually financial consequences related to how you go about distributing your assets. You can do so in the form of estate planning, which involves creating documents such as wills and legal vehicles such as trusts to establish how your assets are handled after your death. In some cases, you might want to pass on some assets prior to your death, but if you aren’t careful, you could end up with a tax bill for your trouble.
The Internal Revenue Service levies taxes on gifts that exceed the gifting exemption threshold in a given year. The exemption is calculated per person, which means you can give up to the threshold amount multiple times as long as you are doing so to different people. You can also give multiple gifts in the same year to the same person as long as the total value of those gifts doesn’t exceed the threshold, which is $14,000 for 2015.
Some individuals combine gift-giving with legal vehicles within their estate plan as a way to ensure heirs get the most from assets being passed on to them. You might provide gifts for certain family members for several years as a way to reduce the value of your estate to avoid estate taxes, for example.
Anytime you start looking to move money or create legal vehicles for assets to save on tax bills, you should be concerned with whether you are on the right side of the law. Working with an experienced professional can help ensure that you save money in a legitimate fashion so that neither you nor your heirs face trouble with tax agencies in the future.
Source: Bankrate, “Know the gift tax rules,” Constance J. Fontaine, accessed June 26, 2015
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