The Four Ways You Can Make Tax-Free Gifts

You are receiving this email because you signed up to receive Bob Carlson's free e-letter Retirement Watch Weekly, or you purchased a product or service from its publisher, Eagle Financial Publications. [Carlson's Retirement Watch Weekly] [Retirement Reports](www.retirementwatch.com/retirement-resources/) [Retirement Articles](www.retirementwatch.com/retirement-articles/) Brought to you by Eagle Financial Publications The Four Ways You Can Make Tax-Free Gifts by Bob Carlson Editor, [Retirement Watch]( 03/17/2024 SPONSORED [Yours Free: My Top 7 Election Year Stocks]( [image]( With the 2024 election barreling toward us, now is the time to prepare your portfolio. All signs point to another nasty election cycle that looks too close to call. So the best strategy now is to own stocks that have a strong history of post-election gains no matter which party wins. We’ve pinpointed 7 stocks that do just that. And you can [get their names free for a limited time in our new report, “7 Stocks to Own Before the 2024 Election.”]( [CLICK HERE...]( Fellow Investor, [Bob Carlson]Gift giving is an essential strategy in many estate plans. When done properly, gifts reduce lifetime income taxes and reduce or eliminate estate and gift taxes. Through gifts, you help loved ones today, and see the benefits of that help, instead of having them wait to inherit. To optimize gifts, know how to minimize gift and estate taxes. Though estate taxes are not a widespread concern today, they could be in the future if Congress changes the rules or lets the 2017 tax law expire at the end of 2025, as is currently scheduled to happen. There are four different ways to make tax-free gifts. Know each of the methods and choose the best one for each of your gifts. That will maximize the after-tax wealth available to your family. The first gifts to consider are qualified education and medical gifts. There are no limits to the tax-free amount you can give per person or to the number of people to whom you can make these gifts each year. Only a few simple requirements need to be met. Education gifts are qualified when they pay for direct tuition costs and not for items such as books, supplies, board, lodging or other fees. The gifts also must be made directly to an education institution, not as reimbursements or advances to the student or parents. The payments can be for any level of education. Qualified education gifts include payments made on behalf of any individual, regardless of his or her relationship to you. A qualified medical gift is any expense that would be deductible as a medical expense on Schedule A of the individual income tax return if paid for by the individual receiving the services. Deductible medical expenses are fully defined in free IRS Publication 502, available free on the IRS website. The payments must be made directly to the medical care provider, not to the person receiving the medical care. Gifts that don’t qualify as education or medical gifts might qualify for the annual gift tax exclusion. For gifts made in 2023, the exclusion limit is $17,000 per recipient. The limit is indexed for inflation annually but increases only in $1,000 increments. Gifts can be of either money or property. If property is given, its fair market value on the date of the transfer is the amount of the gift. You can make gifts up to the year’s exclusion limit to any individual without any estate or gift tax consequences. Gifts that qualify for the annual exclusion won’t count against your lifetime estate and gift tax exclusion. The recipients won’t owe any federal taxes on the gift or gifts. Qualified education and medical gifts don’t count against the annual gift tax exclusion. If you make more than one gift to a person during the calendar year, the gifts are added to determine if the annual limit was exceeded. You can make these gifts to as many people as you want during the year, with a separate annual tax-free limit for each person. A recipient doesn’t need to have any family or other relationship with you. If you have three children, you can give each of them $17,000, allowing you to remove $51,000 tax-free from your estate. In a married couple, each spouse has a separate $17,000 limit per recipient, or they can make joint gifts of up to $34,000 per recipient. The main restriction is that only gifts of “present interests” qualify for the exclusion. Basically, this means any gift with strings attached or limits doesn’t qualify. For a gift to qualify for the exclusion, you must transfer full legal title to the property. An exception is known as the Crummey trust power, named after the court case that first recognized it. A Crummey power allows a trust beneficiary to withdraw a gift from a trust within a certain period, usually at least 30 days, after the gift is made. Suppose Max Profits transfers $17,000 to a trust of which his son, Hi, is beneficiary. The trust’s Crummey power allows Hi to cause a distribution to him up to the amount of the gift if he makes the request within 30 days after the gift was made. If Hi doesn’t request a distribution, the money stays in the trust and is managed and distributed under the terms of the trust. The Crummey provision allows parents to use the annual gift tax exclusion without giving immature or irresponsible heirs immediate control over the money. Some in Congress and the IRS want to eliminate the Crummey provision. [What Investors Can Do If They’re NOT Ready for Retirement]( [image]( Thanks to a little-known loophole in the law, investors can collect between $2,500 and $3,900 per month for the rest of their lives, tax free, even if they currently have ZERO saved for retirement. It’s a retirement strategy unknown to most financial planners, yet it’s 100% legal and approved by the IRS. One famous investor used this secret strategy to turn just $2,000 into $5 billion. [Click here to find out more.]( [CLICK HERE...]( Once the tax-free medical and education gifts and annual exclusion are exhausted, you can make additional tax-free gifts using the lifetime estate and gift tax exemption. The lifetime exemption amount in 2023 is $12.92 million. In a married couple, each spouse has a separate $12.92 million exemption for a combined $25.84 million exemption. Any gifts you make during the year that exceed the annual exclusion and don’t qualify as qualified medical and education gifts count against your lifetime exemption. The lifetime exemption really is a credit against estate and gift taxes that effectively makes gifts up to $12.92 million tax free. After making these gifts, you file a gift tax return and use part of your lifetime credit to eliminate the gift tax. To the extent your lifetime exemption isn’t used against taxes on lifetime gifts, the remainder is used to reduce estate taxes. Suppose Max Profits has a $20 million estate and isn’t married. Over the years, he gave $5 million in taxable lifetime gifts to his children and used the lifetime credit to eliminate the taxes. Max dies near the end of 2023. His lifetime exemption is down to $7.92 million, because of the taxable lifetime gifts. That means $12.08 million of Max’s estate is subject to federal estate taxes unless he has deductions or other credits to reduce the tax. In 2021, several proposals to reduce the lifetime estate and gift tax exemption failed to pass Congress. Even if none of these proposals are enacted, the current exemption amount is scheduled to be cut in half after 2025 when the 2017 tax law expires. In your estate planning, consider the possibility the exemption might be reduced by either an act of Congress or expiration of the 2017 law. If your estate might be taxable after the exemption is cut in half or less, consider reducing the size of your estate by making gifts in the next few years. Even if the lifetime exemption is reduced in the future, gifts that were tax-free when they were made shouldn’t become taxable if the lifetime exemption is lower in the year the person dies. The IRS has issued some guidance affirming the gifts won’t become taxable. It might issue additional guidance as soon as sometime this year discussing some special situations such as gifts made shortly before death. There are some in Congress who want to “claw back” gifts made at a higher exemption amount by including them in the taxable estate if the exemption is lower when the estate is processed. But that idea currently doesn’t have a high probability of becoming law or being constitutional. The fourth way to make tax-free gifts is to give money or property to your spouse. Gifts between spouses are tax free without limit. Spousal gifts aren’t as valuable now that unused estate tax credits can be transferred to the surviving spouse. But you should know that all gifts to your spouse will be tax free. Taxable gifts can be reduced further using sophisticated strategies that reduce the value placed on gifts, such as grantor annuity trusts, family limited partnerships and more. A good estate planner can help decide if any of these strategies is appropriate for you. Be advised there are proposals in Washington to limit or repeal these strategies. The IRS issued proposed regulations in 2016 to restrict the strategies, but they later were withdrawn. Individuals whose estates exceed or are close to the current exemption level should consider using these strategies while they still are available. To a better retirement, [Bob Carlson] Bob Carlson Editor, Retirement Watch Weekly P.S. I will be holding a subscribers-only teleconference on March 19 at 2 p.m. EST called "The Coming Retirement Squeeze." The event is free, but you must [register here]( to be able to participate. Don't miss out! SPONSORED [3 Steps for Surviving the "Perfect Storm" Market Crash]( [image]( Recent moves by the Fed could wipe out billions of dollars in the market…worse than the .com bubble, housing meltdown, or covid-crash combined. Navigating this requires more than gut instinct; it calls for the sophisticated edge that artificial intelligence trading software provides. [Learn to Protect Your Money Ahead of Any disastrous Event for FREE >]( [CLICK HERE...]( Want More Retirement Advice? Check out my website, [RetirementWatch.com](, where you’ll find hundreds of free articles covering every aspect of retirement planning. Popular Posts: [Marital Deduction - Dos and Don'ts]( [The Overlooked Triple Tax Saving Tactic]( [10 Basic Rules for Every Estate Plan]( [How to Vary Spending During Retirement]( New to the Retirement Watch Community: SeniorResource.com Have you ever wondered what happens to your stuff after you’re gone? Who gets your favorite painting? Your coin collection? You might live another 50 years, or you might get struck by a rogue bowling ball tomorrow (hopefully not!) Estate planning ensures your loved ones aren’t left scrambling to figure out what you wanted. It’s not about fancy tax breaks (although those can be a bonus!), it’s about peace of mind. Think of it like the ultimate gift to your family. 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