Proposed changes could impact federal gift and estate taxes
Many New York residents have a goal of earning and saving enough money to provide for their own needs through the ends of their lives. If they are able, they may also try to save and invest so that when they die, they are able to leave something of value to their children and other loved ones. At present, an individual may gift or give at their death up to $11,700,000, including gifts made during their lifetime.
Recently, the federal government has proposed drastically lowering the federal gift and estate tax amount sooner than expected. If enacted, the change would reduce the total from $11,700,000 where it stands now to $6,020,000, adjusted for inflation, on January 1, 2022. This change could alter the estate planning strategies individuals are currently using and their goals to avoid taxation at the time of their deaths.
Options for gifting in avoidance of the gift tax
One way that an individual may reduce the overall size of their estate is through gifting. Each year the federal government sets a maximum gift amount that an individual may give to another person to avoid having to file a gift-related tax form. A person can gift the maximum amount to as many people as they wish, including but not limited to family members and friends.
Individuals can also gift property to their spouses with any tax consequences. There is one exception, though. If a person’s spouse is not a United States citizen, then an annual cap will be placed on how much gifting they can receive from their spouse.
Trusts and charitable giving
Another option for reducing the overall size of a person’s end of life estate involves the establishment of an irrevocable trust. In some situations, often when creating trusts for children, a person can avoid gift taxation by establishing specific terms for the administration of the trust. Those terms can include setting a date when the child must be able to control the trust and other management considerations.
Different taxation rules can apply to charitable giving to nonprofit organizations. It may be possible to give to a charity and reduce one’s estate without adding to their lifetime gifting amount.
For those who have questions and concerns about their overall estate sizes in light of the prospective legislative changes discussed herein, consultations with trusted estate planning lawyers may be beneficial. Estate planning can help New Yorkers save their hard-earned money and build giving plans that benefit their loved ones.