Right now, the federal gift and estate tax exclusions are especially generous thanks to the 2017 Tax Cuts and Jobs Act. This makes now a good time for gifting, if you can afford it.
The 2017 Tax Cuts and Jobs Act
The 2017 Tax Cuts and Jobs Act doubled the amount of the gift and estate tax exclusions. Currently, a person can give over $12 million before they will be subject to gift, estate and transfer taxes.
However, these heightened exclusions sunset at the end of 2025. At that point, they will return to their previous limit of just over $6 million.
Gifting as part of estate planning
So, now is the time to make gifting part of your estate plan. You can make gifts during a beneficiary’s lifetime, give to charitable institutions and make other large gifts rather than leaving them in a different estate planning vehicle such as a will or trust.
Still, you will want to consider several factors before making a large gift. Is the beneficiary able to responsibly manage a large financial windfall? Will a large gift help or hurt your intended beneficiary’s lifestyle?
You also want to consider whether a life insurance policy will be more effective than gifting. A life insurance policy is paid into during your lifetime, but your beneficiary will not receive the proceeds until you pass away. Depending on your financial situation, you may be able to leave more to your beneficiary through life insurance than through gifting.
But, if you can afford it, providing gifts to your beneficiaries now up to the exclusion point during your lifetime can benefit you, them and your family for generations to come. It can be a key part of your estate planning strategy.