By Craig J. Ruffolo and David White
The potential for change in varied tax charges is heightening the attention of property taxes and elevating questions on gifting methods for households. Low rates of interest and, in some instances, decrease asset values attributable to present occasions have created an actual alternative to switch wealth in reward planning. Whereas there are numerous methods that work in life and at demise, there’s one which if not used now, you’ll lose it.
As of 2021, the property tax exemption, or the quantity an individual can switch at demise with out incurring federal property taxes, is $11.7 million. An individual can select to attend till demise to bequeath it or give that quantity to household throughout their lifetime.
Some households could also be involved with adjustments to the quantity of this exemption. Simply 15 years in the past, it was solely $2 million — and even when Congress doesn’t enact any adjustments within the subsequent few years, the lifetime exemption is ready to revert to $5 million (adjusted for inflation) in 2026.
Nonetheless, on a smaller scale, any particular person can provide $15,000 to any variety of people yearly and never have it rely towards the lifetime reward and property tax exemption. This reward alternative can add up shortly, but when it isn’t used throughout a given yr, it’s misplaced.
For instance: a married couple has two grownup kids who’re themselves married with one little one. Partner 1 can provide $15,000 to every of the three folks in every household — thereby gifting a complete of $90,000 a yr. Partner 2 can provide the identical quantity, for a grand annual whole of $180,000. Used as an intentional technique over 15 years, that household might shift a further $2.7 million outdoors their estates, no matter adjustments to the reward and property tax exemption.
Additionally, take be aware that every month, the IRS publishes minimal rates of interest relevant to loans and low cost charges relevant to the rest pursuits and life estates. These charges are nonetheless very low (1.2% in June 2021 in comparison with 0.6% in December 2020), providing the chance to do some impactful planning.
The $15,000 yearly reward alternative coupled with decrease rates of interest permits planners to leverage methods like grantor retained annuity trusts (GRAT), deliberately faulty grantor trusts, intra-family loans, and spousal lifetime entry trusts.
Studying your choices and related dangers is step one in implementing an intentional gifting technique for any household. The following step is to attach an advisory staff of tax professionals and monetary planners with your loved ones lawyer to assist develop a complete plan. Overview your plan every year to ensure it’s nonetheless applicable — tax legal guidelines are consistently altering, together with your loved ones’s monetary state of affairs.
For extra info on reward planning alternatives, contact Craig Ruffolo at craig.ruffolo@CLAconnect.com or 309-495-8804, or David White at david.w. white@CLAconnect.com or 309-495-6931.
For extra info on CliftonLarsonAllen LLP, go to CLAconnect.com.