Many families lose thousands of dollars to estate taxes when a loved one passes away. But often, this can be avoided by giving some of their wealth away during their lifetime, rather than leaving it all behind.
The time to understand these strategies is now, before your own estate faces similar challenges.
Understanding estate taxes
An estate includes everything a person owns at their death, including but not limited to real estate, bank accounts, investments and personal belongings.
Estate taxes are levied on the total value of these assets when they exceed a certain amount. The purpose of giving gifts during a person’s life often aims to lessen the estate’s overall value at the time of death, potentially reducing future tax obligations.
Lifetime gifts and estate tax considerations
You can make certain gifts during your lifetime without incurring gift taxes or reducing your lifetime estate tax exclusion. Federal law sets specific rules about these transfers.
Each year, individuals can give a certain amount to another person without it counting towards their lifetime exemption or requiring a gift tax return. In 2024, you can gift up to $18,000 to as many people as you want without any tax implications.
Gifts exceeding this annual exclusion amount begin to use up a person’s lifetime gift and estate tax exemption. The federal government combines these exemptions into one unified exclusion amount. For 2024, this amount is $13.61 million per individual.
It is important to know that California does not have its own state-level estate tax or inheritance tax. This simplifies matters for California residents, as they only deal with federal estate tax rules.
Benefits of lifetime gifts
Giving assets during your lifetime offers numerous advantages beyond potential tax savings:
- Reduces the size of your taxable estate
- Allows you to see recipients enjoy your gifts
- Helps family members with current financial needs
- Avoids probate on gifted assets
- May minimize family conflicts after death
- Can transfer appreciating assets before they gain more value
These benefits make lifetime gifts a powerful estate planning tool.
Seeking professional guidance
Gift tax laws change frequently and contain many exceptions and special rules. What works for one family might not work for yours.
An estate planning attorney can design a personalized strategy that accomplishes your specific goals. The resources spent on professional advice typically pay for themselves many times over through tax savings.