Patinelli & Chang, LLP

Having a Generous Spirit is a Good Thing for Many Reasons

“Gifting can be done for other reasons during life or as bequests at death. The reasons for doing so could be to accomplish non-tax or tax goals.”

Many people give generously throughout the year, for birthdays, to help children or grandchildren with college costs or just because they want to help family or friends. However, according to the New Hampshire Union Leader’s article “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes.”

Lifetime giving means that you are more involved with giving, than if your giving occurs after you have died. Perhaps the best part of gifting with warm hands, is that you are able to enjoy seeing the recipient (donee) benefit from your gift. It’s a good feeling to see a person have his life enriched by your generosity.

It should also be noted that sometimes, giving away something can be a way of liberating yourself. With less property, there’s less for you to manage, insure or provide upkeep.

If you die with no will, the intestacy laws of your state will determine who gets what. With a will, you have the opportunity to make your intentions known clearly. However, since you will not be alive, you won’t be able to see the actual transfer of property. A beneficiary might decide that they don’t want an asset. It is also possible that someone who always told you that he loved the painting in the foyer of your home, may decide to sell it, instead of keeping it.

Lifetime giving lets you react to changing circumstances and provides some control over how your assets are distributed.

After your death, your property and your estate may go through probate, which in some states can be a lengthy process. Lifetime giving also reduces the costs associated with probate and estate administration, because they won’t be included in your estate at the time of death. Assets that come out of the probate estate, reduces the likelihood of estate creditors or dissatisfied heirs. Lifetime gifts are private, while probate is public.

However, there are also tax advantages. If your gifting program is structured correctly by an experienced estate planning attorney, income and estate taxes can be decreased. Generally, a gift is not taxable income to the donee. However, any income earned by the gift property or capital gain subsequent to the gift, is usually taxable. The donor holds the responsibility of paying state or federal transfer taxes imposed on the gift. There are four taxes to be aware of: the state gift tax, the state generation-skipping transfer tax, federal gift and estate taxes and the federal generation-skipping transfer tax.

Many people give, because they want to support charitable causes or help friends and family enjoy a higher quality of life. The need to reduce the size of an estate to lower estate taxes is now less prominent, since the federal estate tax exemption is so high. It should be kept in mind that the new tax laws regarding federal estate taxes end in 2025. That may seem far away, but it will be here soon enough.

Another way to give, is to help with college expenses. Any gift must be made directly to a qualified institution. Similarly, if you’d like to help a friend or family member with medical expenses, a gift needs to be made directly to the healthcare provider. Not only are these types of transfers exempt from federal gift and estate taxes, but they are outside of the $15,000 annual gift exclusion gift you can make to an individual in any given calendar year.

This is a simple overview of gifting. An estate planning attorney should be consulted to create a plan for giving, that aligns with your overall estate plan and tax management plan.

Reference: New Hampshire Union Leader (April 7, 2019) “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes”

Here’s a Happy Way to Start the New Year – A Gift of Estate Planning

“We know what you may be thinking. Estate planning can be morbid, and no one wants to think about the end of life during the holiday season, but that's all the more reason to start planning now.”

If you think of estate planning as a gift to your loved ones, and not an obligation, then you will understand why the start of a new year is the perfect time to give your family the peace of mind that an estate plan can bring. The article “Give the gift of estate planning to loved ones this holiday season” from the Brainerd Dispatch describes how stress and guilt for the family can be alleviated just by having a good estate plan in place.

Your estate plan will provide your family with clear directions on where you want your assets to go when you have passed, but that’s just for starters. They will be dealing with many moving parts when you pass: funeral arrangements, notifying family members and grief, which can be overwhelming.

If you don’t have a will or haven’t done any planning, the process for your family to gain access to your assets becomes extremely problematic. The process is called probate, and it can take months and cost a great deal to unlock real estate ownership, account information or other assets for your spouse, children and grandchildren.

There’s also no way to ensure that your assets will be distributed as you wanted, if you do not have a will or an estate plan. Let’s say you have a non-traditional family. You’ve lived with your partner for decades, even raised children together, but never married. Your partner and your children may find themselves completely without any voice in your estate, and no right to any assets. Without a will, the state’s laws will determine who receives your assets, and that may be a sibling or a parent, if still living.

Your estate plan becomes your legacy, and it’s not just for family members. If there are causes or organizations that have meaning for you, they can be included in your estate plan. Lifetime giving or giving “with warm hands” is rewarding, because you get to see the impact of your generosity. However, you can use an estate plan to make a gift to an organization, which serves a dual purpose. It decreases the value of your estate, and can lessen the tax burden of your estate, giving your family more money.

There are many ways to make planned giving part of your estate. Donor advised funds are increasingly popular, or you may want to use a charitable trust or fund a scholarship. Your estate planning attorney will be able to help you determine the best way to structure your giving.

An experienced estate planning attorney has worked with families of all different types and will have the knowledge and skills to help you create an estate plan that works best for your family. The attorney will also encourage you to talk with your family members to make sure they know that you have put a plan into place. You may wish to have a family meeting with your estate planning attorney, to ensure that everyone understands why you made the decisions you did and ensure that the family understands that your estate plan is a gift from the heart.

Reference: Brainerd Dispatch (Dec. 8, 2018) “Give the gift of estate planning to loved ones this holiday season”

Want to Give Away All of Your Money?

“Even if you’re not a millionaire, you may have reached a stage where you think, It’s enough. It could even be a bit too much. A second car may sit mostly in your garage. A beloved vacation home may have transformed from a place to relax to a place to maintain.”

You don’t have to be a millionaire to feel like you’ve got enough. How many cars, vacations or houses does anyone really need? If you’ve reached that point, congratulations. Now, what do you do about it? How do you share your resources in a way that is carefully thought out and doesn’t create a battle among family members? An article from AARP, “How to Give Your Money Away,” provides some good points.

A grandchild needs a college education. Use a 529 college tuition plan to help your grandchild, by contributing to a plan created by the child’s parent. Financial aid formulas look at contributions from a grandparent’s plan but not a parent’s plan as student income. To allow your grandchild to be eligible for student aid or grants, make sure that the funds you contribute go to his or her parent’s 529. Many states permit you to switch ownership to the parent,  if the beneficiary remains the same.

You want to be philanthropic, even if you’re not Warren Buffet. You can use what’s called a DAF—donor advised fund. They are like charitable savings accounts. The tax deduction for any cash or investments placed in the fund is immediate, so you can front-load two or three years’ worth of giving into one year. You can also claim a charitable deduction for a year, when you intend to itemize instead of taking the new standard deduction. You can direct grants from the fund to any non-profit organization you choose and whatever timeframe you like.

One child is a smashing success, the other is a starving artist. Sometimes the disparity of incomes between children, can be a result of choice or abilities. Nevertheless, you may not wish to leave the exact same amount to both kids. One of your children might have a disability and needs special planning. It’s your call and it’s also your call whether to share all the details with your kids. Logic prevails in some families and there’s no drama over these kinds of decisions. Less information about their inheritance is better for others. You could insert a no-contest clause in the will to forestall any litigation.

You have visions of generations enjoying your summer cottage. Sometime this works out.  However, sometimes the kids have no interest in the property and just want to sell it. Have that conversation first. If no one wants it, sell it when the timing works for you. If one kid loves the house and the others don’t care, work out the numbers so the house stays in the family, but the child receives a smaller percentage of assets. If the family wants to keep the house, work with an estate planning attorney to create an LLC (Limited Liability Company) and give shares to the kids. You’ll need an operating agreement, including how the cost of maintaining the property will be handled and what happens, if someone wants to sell their share. Define the universe of eligible owners as lineal descendants and not spouses, to forestall an ownership battle in the case of a divorce.

Talk with an experienced estate planning attorney about how to give away your assets in a way that will make sense for your family and gain useful tax benefits for your estate.

Reference: AARP (May 1, 2018) “How to Give Your Money Away” 

Purposeful Gifting

Giving gifts to family members is one way to shrink your estate below the estate tax threshold. You can even use those gifts as incentives for your family members to do good things.

As long as the estate tax is with us, people will look for ways to avoid it. There are all kinds of different ways to accomplish this.

Some of these ways work better than others, depending on the size of the estate and other potential issues.

One common strategy is to give your assets away before you pass away. If they are not in the estate, then assets cannot be subject to any estate taxes.

This is known as gifting.

Many wealthy people decide to implement gifting plans to get around the estate tax. Others do not out of fear that giving assets to younger family members could lead to problems, such as younger people wasting the money or becoming disincentivized to make their own money.

There are ways around those problems, as Private Wealth discussed in "Purposeful Family Gifting."

The idea is a fairly simple one.

You can give gifts as a way to incentivize younger people to do good things. For example, a gift of cash could be conditioned on someone needing to graduate from college or hold a job for a certain period of time, before they will receive the cash.

The options are nearly limitless.

If you tell someone they can get a gift of cash if they do something, then within reason you can incentivize your family to do many good things.

If you are interested in a gifting strategy, talk to an estate planning attorney.

There are limits and tax implications to be aware of, before starting to give gifts.

Reference: Private Wealth (July 19, 2017) "Purposeful Family Gifting."

Gifting to Children Can Be Done Incorrectly in Torrance CA

As much as you might want to help your children by giving them money they can use, it may be best to hold off and seek advice to make sure that you are doing so in the best way.

Most parents like doing nothing more than helping their children when they can and when the children deserve the help. Parents often understand that when their children are getting their careers and lives started, they might need some financial assistance to help them along the way.

Giving children a little money now, might go a long way to helping the child make a lot more money later. However, many parents are so eager to give to their children that they do not think through the best ways to make the gifts.

There are bad ways to give to children, as Kiplinger points out in "5 Ways NOT to Gift to Children ... and 5 Better Ideas."

The most important thing to understand is how giving a child something might affect them and you in the future. For example, if you give a child a large sum of money outright and the child gets divorced, it is possible that your child’s spouse and not your child could get part of the money in a divorce settlement.

Another common problem people run into, is naming a child as the joint owner of a piece of property. That can lead to big problems later, if the child has financial problems as creditors can go after the property.

The best thing to do is to be careful and talk to experts before giving money to a child.

Accountants and estate planning attorneys should be consulted to make sure that the tax and estate implications have all been thought through.

Reference: Kiplinger (January 2017) "5 Ways NOT to Gift to Children ... and 5 Better Ideas ."