Gift Tax Planning
An extremely popular and effective way to avoid or lower estate taxes is by having a well-thought-out gift tax planning strategy. A properly structured gift tax plan will give you options for making gifts to children or other heirs during your lifetime in addition to establishing a charitable giving plan upon your death.
Some of the more popular and cutting-edge techniques used to avoid federal estate taxes include:
Outright Gift – Giving money to loved ones and beneficiaries during your lifetime can lower the overall value of your estate and thus decrease estate taxes. Currently, you may give up to $14,000 per calendar year per recipient without owing a gift tax. In addition, the gift is not considered taxable income for the recipient. This figure is indexed for inflation and increases from time to time.
Charitable Trust – A charitable trust allows you to leave a legacy to causes that you are passionate about – and at the same time substantially reduce your estate taxes.
Grantor Retained Annuity Trust (GRAT) – A Grantor Retained Annuity Trust is an estate planning technique that minimizes the tax liability for the intergenerational transfer of estates.
Intentionally Defective Grantor Trust (IDGT) – An IGDT allows you to lower your taxable estate while gifting assets to beneficiaries at a locked-in value. Your beneficiaries, typically children or grandchildren, benefit from receiving assets that have been able to grow without reductions for income taxes, which have been paid by you, the grantor.
Qualified Personal Residence Trust (QPRT) – For wealthy families, a QPRT is an excellent tool for managing future tax transfer liability. With a QPRT, you may transfer your primary residence and/or a second home into a trust and retain the right to live in the residence for a fixed number of years. This strategy allows you to reduce the gift or estate tax cost of transferring a residence by leveraging the gift tax exemption.