Some estate-planning strategies require action before the end of the year — and clients may want to consider taking advantage of them before they lose the opportunity.
Chris Hennessey explains some end-of-the-year gifting and estate-planning advantages.
Gift tax exclusion — use it or lose it
An individual can gift up to $14,000 per year without triggering a gift tax, but action must be taken before year’s end or the exclusion will be lost for that tax year. Clients may consider making direct gifts to children or grandchildren or funding a 529 college savings plan.
Gifting while living
Individuals in a high tax bracket may want to gift an asset that is generating income to someone in a lower tax bracket. And individuals holding an asset they believe may appreciate significantly between now and the time of their death they may want to gift it now so the appreciation is transferred to the recipient.
The downside of this strategy would be to those individuals who had an asset that was highly appreciated but had a low cost basis, and who would realize a significant gain if they sold it. If they gift it, the gain carries over to the recipient. If they hold on to the asset until death, the taxable gain is eliminated at death because the cost basis is stepped up.
Giving to charity
Charitable giving is another way to lower taxable income. An individual can take a deduction if the gift is made before the end of the year.
An estate-planning professional can be helpful in structuring a gifting strategy.