Use your Estate to gift money, property or personal loans
When your estate tax liability is too high for your personal preferences or needs, you may want to consider gifting your assets. With some strategic planning and advice from an estate planning lawyer, gifting assets to others may reduce your tax liability and keep you within the limits of $1 million in Massachusetts and $11.4 million for federal taxes.
You’ll need to report your gifts subject to gift tax on an IRS Form 709, even if they don’t reach the exemption limit. Gifts under this definition can include money, property, use of property and even personal loans that don’t need to be repaid or won’t accrue interest. A skilled estate planner can help you and your spouse maximize your gift amount under these exemptions.
Married Couples Unified Exemption
As a married couple, you and your spouse are each allowed to give away $15,000 to each of your adult children—so a family with three children can give $90,000 away before it’s subject to tax. And, of course, you can leave all of your assets to your surviving spouse under the marital exemption, which has no limit.
IRS Estate Tax and Gift Tax
As of 2019, the IRS set the estate tax and gift tax limit at $11.4 million per individual, meaning that you can leave up to $11.4 million to your heirs before your estate must pay a tax on that money—and a married couple can leave $22.8 million. Gifting more than $15,000 to any individual other than your spouse reduces what you can leave tax free at death.
If the estate tax limit is a concern for your family, be sure to note that everything after the $11.4 million limit is taxed at a rate of 40%—which makes it very prudent to start your wealth transfers early. Read more about Advanced Planning for High Net Worth Estates.
Strategic Giving and Medicaid Planning
While the majority of the population won’t need to worry about the estate tax limit, strategically gifting assets over your lifetime can help you prepare for eventualities like Medicaid/MassHealth nursing home eligibility requirements. Because there’s a five-year “look back” policy, in which the organization will look at the last five years of your finances to determine whether you’re eligible for assistance, you’ll want to make sure you’ve whittled down your assets well before you expect to need care. And, just because the IRS allows $15,000 in tax free gifts does not mean MassHealth/Medicaid does; the Medicaid agency does not.
Ultimately, no matter what your financial situation is, it’s smart to contact an estate planning professional so that you can rest assured that you’re making wise financial decisions. Planning ahead early will help you be prepared for your end-of-life care and rest assured that you’ve maximized your children’s inheritance as best you can.
For all your estate planning needs, contact Baker Law Group, P.C. We offer a complimentary consultation and years of experience advising clients on wills, wealth management, and MassHealth planning.