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How can you use gifts in an estate plan to conserve wealth?

Would you like to leave a tax-free gift for someone in your estate plan? It is possible to arrange a gift that does not qualify for certain taxes.

How do gifts help conserve wealth?

If you arrange it correctly, some gifts left through estate plans are tax-free. You would usually give these gifts during your lifetime, rather than afterwards. To be tax-free, gifts must fall under certain dollar amounts or used for certain purposes. The following are considered tax-free gifts:

  • Transfers under $15,000 to one recipient from one donor in one year ($30,000 for a married couple splitting or giving a gift)
  • Direct payments for tuition
  • Direct payments for medical expenses

There are other tax-free or low-tax options to consider for your estate plan. You could create a non-profit, donate to a religious organization or educational institution through a charitable trust. This could be a charitable lead or a charitable remainder trust.

You can also set up revocable or irrevocable trusts to help your estate avoid probate and general court expenses. These require a high level of expertise and cooperation from your beneficiaries but might well be worth the time and professional advice depending on your assets.

What is the Lifetime Gift tax exemption?

In the newest Tax Act, there is a temporary federal exemption for taxes for up to $11.2 million in gifts over a lifetime (doubled for married spouses). Anything over that qualifies the estate for a 40 percent rate.

As a result, wealthy individuals might look to gift some of their estate before they die to qualify for this exemption. This exemption expires in 2025 and might return to the previous $5 million level unless Congress takes future action.

If you are interested in maximizing your estate's assets and avoid unnecessary expense, you may need professional help. Your beneficiaries and you could save in the future.

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