What is lifetime gifting and why should grandparents include it in their estate plans?

What is lifetime gifting and why should grandparents include it in their estate plans?

On Behalf of | Apr 14, 2021 | Estate Planning |

For people in Louisiana who have amassed substantial assets, lifetime gifting is important to consider. While the federal estate and gift tax exemption is currently $11.58 million per person or $23.16 million per married couple, this could change. Lifetime gifting provides a way for people to plan for how to transfer their assets to future generations while minimizing the taxes they might otherwise have to pay.

Understanding lifetime gifting

Lifetime gifting involves using vehicles to provide assets to others while locking in the current gift tax exclusion. This can be done by creating a trust. The assets and money can be transferred to the trust. When the grantor passes away, a successor trustee can then distribute the assets to the beneficiaries under the trust’s terms. This can allow the assets contained in the trust to continue growing while locking in the current high gift tax exemption rate. Creating an irrevocable trust and naming the children or grandchildren as beneficiaries can help to avoid the 40% tax rate for assets that exceed the gift and estate tax exemption later.

Handling complex portfolios

If an estate is complex and includes a mixture of different types of assets, people might benefit by working with a fiduciary. A fiduciary might help to create a trust that allows highly appreciated assets to pass to the beneficiaries with the grantor being responsible for paying the taxes. Other strategies for lifetime gifting include making direct payments for education or medical needs. These types of payments do not apply to the annual gift tax exclusion of $15,000. For example, a grandparent can pay for a grandchild’s college tuition by making a direct payment to the university. The grandparent’s payment would not be included in the gift tax exclusion amount.

People who have amassed substantial assets might want to take steps to lock in the current gift tax exclusion by creating trusts. An experienced estate planning lawyer might advise clients on the types of trusts that might help them to best accomplish their goals while avoiding the potential for high estate taxes.