The easiest way to ensure use of the high federal transfer tax exemptions available in 2020 is to make lifetime gifts. By making a gift, you are able to capture the current high gift tax exemption and remove future appreciation of the gifted asset from your estate.
Many clients will utilize a trust to be the recipient of the gift and several of those trusts are outlined here. However, some clients may decide against the use of trusts and give assets outright to the intended beneficiaries. Outright gifts provide absolute control to a beneficiary, but give up asset protection, management of the asset and possible income tax planning that may be available with irrevocable trusts.
Please keep in mind that a done takes the donor’s tax basis in a gifted asset, so cash gifts may work better than gifts of low basis assets. Also preferred are interests in high basis assets that qualify for valuation discounts, such as a minority interest in a family business or a vacation home.
Clients are encouraged to take full advantage of the annual gift tax exclusion, currently $15,000 per recipient (or $30,000 per recipient for married couples), which allows clients to make gifts up to this amount to an unlimited number of receipts and to move the value of all such gifts out of his or her taxable estate without using any gift tax exemption.