Year End Gifting: Avoid these Mistakes!

November 24, 2021

Writing a check and slipping it into your grandchildren’s stocking may have more consequences than you realize. Gifting assets is not simple and straightforward. These gifting mistakes can be very costly:

Failure to Have an Estate Plan

One of the biggest mistakes you can make when gifting money to loved ones is to do it with no estate plan in place. Planning for the future through a comprehensive estate plan helps to determine what gifting strategies are available to you in the present. Without this knowledge, you may give too much or too little and end up compromising your long-term goals.

Failing to Know About Gift and Kiddie Taxes

While the current exemption amounts are very high ($11 million), there are still requirements to report all gifts to each individual over the amount of $15,000 in any given tax year. Any property of value transferred figures into these amounts. The kiddie tax was created to prevent parents from sheltering assets in their minor children’s names to avoid taxes. Any amount over $2000 will taxed at the same rate as the parents.

Giving to a Special Needs Child

Outright gifts to a child with special needs can jeopardize the child’s government benefits such as Supplemental Security Income (SSI). A special needs trust can be created to hold assets for a special needs child that will not result in loss of benefits.

Failing to Understand Capital Gains Taxes

Certain assets like stock should not be gifted if they have substantially appreciated during your ownership of them. If you gift them, the recipient of the gift will owe capital gains on the profits. If you retain the stocks until your death and then transfer the assets, a step-up in basis will be applied and many of those capital gains taxes can be minimized or avoided altogether.

Giving Too Much

While being generous is certainly a virtue, each person must ensure that they save for a rainy day. Not only should you save enough for unforeseen medical expenses but also consider cost of living increases as well as lifestyle considerations. You may want to travel or move to a new location. Keeping enough stashed away for a solid future is more important than excessive gifting. Gifting should be a well thought out strategy.

For more assistance in gifting strategies as part of a comprehensive estate plan, contact the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599, emailing us at office@stoufferlegal.com, or register for an upcoming free webinar using the link below:

https://attendee.gotowebinar.com/register/3615431045643044364

https://attendee.gotowebinar.com/register/5502063256534593804

https://attendee.gotowebinar.com/register/6502858531326280719

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