Gifting is a well-known strategy for passing the legacy of your wealth to the individuals and nonprofit organizations close to your heart. But there are a number of different factors that must be considered as you explore the possibility of charitable gifting, primarily the current lifetime gift tax exemption.
Our clients routinely inquire about charitable gifting as a way to offer financial support to favorite causes while simultaneously reducing the overall size of your estate. This is a strategy that can be beneficial for many high net worth individuals, as it can reduce tax liability and thereby increase the wealth that’s passed along to your heirs after death.
There are a number of charitable gifting approaches that you can leverage during the legacy and estate planning process, with the help of a trusted estate planning advisor, including strategies that leverage investment alternatives such as annuities and life insurance policies. I’ve found that each client’s situation is unique, so there’s no one-size-fits-all solution. But, understanding some key tax-related figures, including the lifetime gift tax exemption for 2021, can set you on the path toward maximizing the benefit of your estate for your chosen beneficiaries—both heirs and charitable organizations.
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A Look at the 2021 Lifetime Gift Tax Exemptions from the IRS
The U.S. Internal Revenue Service has announced the lifetime gift tax exemption for 2021. Notably, estate and gift tax exemptions are now considered unified exemptions. This means that they are now grouped together, whereas in past years there were two separate estate tax and gift tax exemptions. Unified exemptions are taken into consideration when calculating your total lifetime gift tax exemptions.
As of 2021, the lifetime gift tax exemption rules not including indexing for inflation are as follows:
You can gift up to $11.7 million tax-free as an individual throughout the course of your life OR you can leave up to $11.2 million as a tax-free gift to be disbursed after your death. This figure is increased to $23.4 million if you opt to give as a couple. The amount is actually reflective of inflation indexing and will go up incrementally over the next few years. On January 1. 2026, the exemption levels roll back to 20 levels, a rather big drop.
This is the current lifetime gift tax exemption. Individuals are tasked with tracking (and reporting) gifts over the course of their lifetime, so this is an issue you’ll certainly want to explore with your tax or financial advisor.
Annual Gifting Above the Lifetime Gift Tax Figure
When discussing the issue of gift taxes, it’s important to note that there is an annual gift tax exclusion that is completely separate from the lifetime gift tax exemption figure. With the 2021 annual gift tax exemption, you have the power to give away $15,000 per person to an unlimited number of people each year. This figure has increased in 2021, rising from $14,000 in 2017.
Notably, married couples can take advantage of a $30,000 tax-free annual gift which, for instance, could be given to a child annually. This gift will not be deducted from the individual figure of $11.7 million or $23.4 million jointly as a married couple. As a result, since the gift can be given to an unlimited number of people, substantial money can be gifted to grandchildren, for example, which would significantly lower the taxable exposure of the estate while providing significant wealth to loved ones. A couple with 10 grandchildren can gift $300,000 annually without reducing their federal estate tax exemption!
Why Charitable Gifting Is Important for Minimizing Tax Liability
Gifting is a key component to lowering the tax liability on your estate. With the right estate planning team of charitable gifting experts, you can leverage a number of other strategies and investment alternatives, such as annuities and life insurance.
For example, it’s possible to use the annual charitable gift to secure a life insurance policy that will pay out at the time of your passing. In addition to the life insurance payout being tax free to your beneficiaries, the total sum they receive will likely far surpass the amount invested in the policy. This makes life insurance policies an effective method for maximizing wealth transfer.
Our team of experienced charitable gifting advisors is available to help guide you through the process of maximizing your wealth transfer to the people and organizations that matter most, while also maximizing the amount of money that’s sheltered from taxes. We understand how confusing and complex the estate and financial planning process can be, particularly for high net worth individuals, so our professionals are happy to work alongside your investment advisors and financial planners for a charitable gifting strategy that will bring the maximum benefit to your estate.
For over 56 years, the experts at Howard Kaye Insurance have been providing assistance to clients who are planning for the future, whatever it may hold. We work to help you achieve your estate planning objectives using a range of investment alternatives such as life insurance and annuities.
We can also work with your financial planning advisors to help minimize tax liability on your estate, allowing you to maximize the wealth that’s passed along after your passing. We look forward to learning more about your objectives and your unique situation, so we encourage you to contact our trusted experts by calling 1-800-DIE-RICH.
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