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Estate Planning and Gift Tax Exemption

June 24, 2020 — by John Conger
Tags: Estate Planning

Judge’s deskEstate planning is an essential financial tool, especially for those with significant wealth. Estate planning allows individuals to provide for their family, protect their legacy, and reduce taxes, fees, and other hassles for surviving loved ones.

There are many factors that must be considered when estate planning, which is why it is so important to work with a knowledgeable attorney. The estate planning lawyers at Shore, McKinley, Conger & Jolley, LLP understand the nuances of tax laws. We help our Stockton, CA, and Walnut Creek, CA, clients take advantage of loopholes, such as the gift tax exemption. Estate planning and gift tax exemption can maximize the amount of wealth that our clients are able to pass on to loved ones.

What Is Gift Tax Exemption?

A gift tax exemption is a tax exclusion that allows individuals to give financial gifts that are tax-free. The gift tax exemption enables our clients to gift some of their wealth while they are still alive. The gift tax exemption can be beneficial because it allows people to help out loved ones who may need assistance now, rather than waiting until they receive money in an inheritance.

Additionally, the gift tax exemption protects the value of transferred assets, and the potential future growth of those assets, from being taxed.

Gift Tax Exemption Limits

There is a limit to how much a person can gift under the gift tax exemption. Each year the IRS adjusts gift tax exemption limits in accordance with inflation. Currently, the yearly gift tax exemption limit is $15,000, while the lifetime gift tax exemption limit is $11.4 million. These limits apply to individuals, which means that spouses are able to gift twice this amount: $30,000 per year or $22.8 million in a lifetime.

Lifetime gift tax exemption limits can be used partially or completely during a person’s lifetime. If a person dies before reaching the gift tax exemption limit, any remaining portion can be used by heirs to reduce (or eliminate) the amount of estate taxes owed.

Gifts Exempt from Estate and Gift Taxes

There are certain gifts that are always tax exempt, regardless of gift tax exemption limits. If our clients choose to gift others in these ways, they can reduce the value of their estate while they are still living, without depleting from gift tax exemption limits. Gifts that are exempt from taxes include:

  • Payments made for a person’s education or tuition
  • Payments made for a person’s medical bills
  • Charitable contributions made to a tax-exempt organization

In the case of tuition payments or medical bills, it is important to note that the payments must be paid to the organizations directly, and not to the individual who is responsible for the bills.

Strategic Gift Giving

Taking the gift tax exemption into account, our estate planning lawyers can help clients plan strategic gift giving. Strategic gift giving gives individuals control over how a portion of their wealth is divided, while allowing them to help loved ones protect transferred assets from steep tax payments. The right gift-giving strategy maximizes savings and plans for your family’s financial future.

Learn More

If you want to protect your wealth and ensure that your family gets the most out of your assets, the estate planning attorneys at Shore, McKinley, Conger & Jolley, LLP can help. To discuss your estate planning needs with our team, send us a message at your earliest convenience or call (209) 477-8171.