Christmas is the season of giving, and as Jesus himself said, “It is more blessed to give than to receive.” (Acts 20:35). I agree, It IS more blessed to give than to receive for profound reasons. As an estate planning attorney, I regularly deal with the practical implications surrounding giving. As my gift to you, here is some information to consider.

There are two main types of giving you can engage in that can have estate benefits: charitable giving and giving to family and friends.

Charitable Giving

Charitable giving at death is straightforward – every dollar you leave to a charity will not be part of your taxable estate. The United States tax code has long encouraged charitable giving with favorable tax benefits, both annually and at death. Sometimes, clients will plan to leave taxable wealth to a charity rather than to their beneficiaries. I’m not a fan of this simple approach, because we don’t really know what the estate tax limits will be when a person dies. The beneficiaries may only receive a token amount, and the charity would get the bulk of the wealth. A better strategy can be lifetime charitable trusts: the Charitable Remainder Trust, and the Charitable Lead Trust.

Charitable Remainder Trusts (CRT) are used for clients who own a highly appreciated asset that they would like to sell. If they simply sold the asset, they would pay a large capital gains tax. Instead, they can put the asset into a CRT, which then sells the asset but pays no capital gains tax. The CRT invests the proceeds of the sale and pays the client an income. This income is taxable, but the value of the asset initially put into the CRT becomes an immediate charitable tax deduction against income over five years. Upon the client’s death, the contents of the CRT are distributed to a charity and avoid estate tax. Benefits: The client avoids capital gains taxes, disposes of a difficult to manage asset, gains an income based on the full value of the asset, gets an immediate tax deduction, and avoids estate taxes on that asset. Good giving!

Charitable Lead Trusts (CLT) are used to deflate the value of an income-producing asset to pass to a client’s beneficiaries without gift tax. Benefits: My heirs inherit a valuable asset, I use a very little portion of my lifetime tax credit, and a charity receives a great income for 10 years.

Gifts to Loved Ones

Giving to family members or friends allows them to grow your gift in their own estate. However, personal gifts over $15,000 are subject to a gift tax and should be reported to the IRS. Gift taxes often surprise people, and in true IRS form, the rules are confusing. For example, if you put a non-spouse on title to a property you purchase, you’ve made a gift to that person! If the value of the property interest exceeds $15,000, you are supposed to report the gift to the IRS. 

Unreported gifts are currently safe from tax consequences because the lifetime credit amount is over $11M. In 2025, this amount will sunset back to approximately $6 million. Gifts over $15K in a year reduce the lifetime credit amount. So, since some normal activities could legally constitute a reportable gift, careful consideration is needed when an estate plan gifting strategy is implemented.

The Giving Season

Due to the shrinking death-and-gift-tax credit, the next three years are going to be the “giving season” in estate planning. With the lower lifetime limit, it will make sense for wealthier parents and grandparents to give amounts up to $5 million to their heirs and beneficiaries – in trust or out of trust. Yes, their future ability to use the credit will be lost. However, the amount they give, especially in an economy of high inflation, will grow in value, making such gifts a good estate planning move.

From our firm to you, have a wonderful holiday season with all the gifts of love and friendship that the season brings. And as always, when you are ready to give your family the peace of mind that comes from a well-planned estate, come see us!