I’d Like to Make Gifts to My Children But I am Concerned About the Gift Tax

If you are interested in making gifts to your children, you may be worried about the gift tax and estate tax. The tax can be substantial, so it is best to fully understand the ramifications of making the gift before doing so. While there are real benefits to lifetime giving, there are also many drawbacks. The Libertyville estate planning attorneys at Johnston Tomei Lenczycki & Goldberg LLC will meet with you to determine your financial situation and whether it is wise to make lifetime gifts to your children.

Benefits of Lifetime Gifting to Children 

Lifetime gifting to your children has a number of benefits, including:

• Annual Gift Tax Exemption.  For 2018, gifts under the annual exclusion amount ($15,000) will not be subject to an estate tax. Or put another way, you can reduce your estate tax liability by making gifts to your children of $15,000 per year per child. Technically speaking, this gift can be to anyone and any number of people so you can really reduce your estate by lifetime gifting. And utilizing sophisticated gifting techniques, such as front-loading a 529 plan, can allow you to gift even more.
• Seeing Benefits During Your Lifetime.  Unlike testamentary gifting (gifting upon death), lifetime gifting to your children allows you to see the results of your gift. This can be particularly satisfying if your children use the gift to better their lives. Many people prefer lifetime gifting over testamentary gifting for this aspect alone. Your children may have a more pressing need for money now than years down the road when they have saved for their estate.

Drawbacks of Lifetime Gifting to Children

Lifetime gifting to your children has a number of drawbacks, including:

• Exceeding the Exclusion Amount. If you gift more than the annual gift tax exclusion, the amount over the exclusion will be attributed to your estate. This is essentially cementing that amount as part of your estate, thus increasing the likelihood of being subject to the estate tax while preventing other options from being applied to exclude the amount from estate tax.
• Gift Tax Return. When you make a lifetime gift, you are required to file a gift tax return each year outlining the gift.  This is not optional, it is a requirement.
• Depleting Essential Assets.  Some people who gift during their lifetimes discover that they are running out of assets to use for their own well-being.  It is important that if you plan on partaking in lifetime gifting that you have sufficient assets to cover your healthcare and living expenses for the remainder of your life. Don’t stretch yourself too thin. Financial advisers can estimate how much you might need to live comfortably. It is important that you speak with one before you start gifting.

Steps to Make a Lifetime Gift

If you intend to gift to your children, then you will want to memorialize the gift.  Ideally, the gift will be documented so that it is clear to the I.R.S. the source of the gift. The last thing you want is the I.R.S. mistaking the gift as income for your child and seeking income taxes. It is also important for your estate that the amount is known to be a gift so that it is not treated as a loan to your child.

Be sure to file a gift tax return. The gift tax lawyers at Johnston Tomei Lenczycki & Goldberg LLC can assist you in preparing the gift tax return or connect you with an accountant. As previously mentioned, for gifts of certain sizes a gift tax return is required.

Contact the Libertyville Gift Tax Lawyers at Johnston Tomei Lenczycki & Goldberg LLC Today 

If you intend to make lifetime gifts to your children, it is important to speak with estate planning attorneys such as the Libertyville estate planning attorneys at Johnston Tomei Lenczycki & Goldberg LLC. We offer a no charge initial consultation where we will go over all of your information to make sure your plan fits your needs and benefits you. We strive to minimize the negative aspects of estate planning and will always seek to accomplish your goals. If you have any estate planning needs, call the Libertyville estate planning lawyers at Johnston Tomei Lenczycki & Goldberg LLC today.