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A recent book I read for a study group introduced the concept that the value of an estate left behind reflects the amount of joy the deceased person denied themselves during their lifetime.
Gary Logan
Wes Shannon
For example, if a person were to leave a $1 million dollar estate at death, that is the amount of joy the person could have experienced during their lifetime in, say, travel or comforts. Also, it represents the loss of joy that comes with giving to others.
Giving to another person or charitable organization you believe in is one of life’s great joys. Why wait until after you're gone and can't experience it?
I have clients who wish to leave their children and grandchildren an estate at death, but I suggest giving as much as you can while you are living. Why not? Enjoy giving and seeing your gifts make a difference. Recently, I had clients, a married couple, give their son a large gift to help him buy a new house. The house will provide lots of room for the grandchildren and a place for the grandparents to stay when they visit.
Charitable gifting should be a part of a comprehensive financial plan. We have found that as clients age, they think more about gifting. In fact, gifting is a large part of the American economy. In 2023 Americans gifted $557 billion to charities, representing a 1.9% increase over 2022.
Taxes are an integral part of gifting strategies. With more American taxpayers taking the standard deductions fewer charitable contributions are tax deductible. For people over the age of 70 ½ who have money in IRAs, an opportunity for an additional deduction over the standard deduction can be attained by making Qualified Charitable Distributions (QCDs) directly from their IRAs. As long as the check from the IRA administrator is payable directly to the charity, it counts as a tax-free withdrawal to the IRA owner.
This can help lower the balance of an IRA before Required Minimum Distributions (RMDs) take place at age 73. Also, a QCD can be used to meet the IRAs owners RMD in those years a RMD is mandated.
When it comes to giving gifts to non-charities, such as family members, gifts of up to $18,000 per person may be given in 2024. This increases to $19,000 in 2025. A larger gift can be made above these annual limits, but it will reduce a person’s unified credit toward estate taxes at death and require the filing of gift tax return. Currently, in 2024 a person has a unified credit of $13,610,000 they can leave in their estate before federal estate taxes are applied. A person may use some or all of this credit while they are alive.
Also, if gifting property or investments, the receiver of the gift will assume the basis of the giver, so if you bought a rent house for $100,000 back in 1990 and give it to your kids now when it is worth $400,000, the kids will assume your basis of $100,000 and have to pay taxes on the gain when they sell it. If the same house was inherited by the kids, then they get a “step-up” in basis and would not have to pay taxes on the gain.
As you can see, gifting requires a plan made with a financial planner and maybe the input of an estate lawyer and accountant. Other options for gifting can be setting up a private foundation, using a charitable remainder trust, a charitable annuity, and possibly a donor advised fund.
There are many strategies for gifting.
I encourage you to experience the joy of giving this holiday season and do it smartly by consulting your Certified Financial Planning™ professional.
Happy holidays and warmest wishes for a joyful New Year!
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.