An important element of your financial portfolio includes estate planning - who will receive your assets, how will they be bestowed and protecting the value of the assets in the transfer. One option is to share assets with children and/or grandchildren during your lifetime, but it is important to understand the tax laws and guidelines that apply to gifting.
For the recipient, gifts are tax-free, regardless of the amount or value of the asset. For the giver, gifts are also tax-free under a lifetime total of $1 million. However, both parties are advised to report all gifts over $13,000 to the IRS utilizing the Gift Tax Return (Form 709). Although the recipient will not owe taxes on the gift, and the giver may not owe taxes, filing allows the IRS to track gifts over the lifetime of the giver, and determine if and when the lifetime limit is met.
Exceptions
Of course, there are a few exceptions and fine print to be aware of:
- The Annual Gift Tax Exclusion applies to gifts up to $13,000 per person, per year. Therefore, a parent or grandparent can give each child/grandchild up to $13,000 each year without reporting the gifts to the IRS, up to a lifetime total of $1 million. In 2018, this will increase to $15,000 per person, per year. (Forbes, October 19, 2017)
- There is no limit on what spouses can gift each other, as long as they are considered legally married within the state of California.
- The amount gifted will affect the total value of the estate, and the Estate Tax Exclusion. If the total estate is worth $5 million, but $1 million is gifted, the value of the estate drops to $4 million.
Real Property Transfers
Transferring homes or property to children or grandchildren are subject to different tax laws and varying tax rates. Proposition 58 allows parents to transfer property to children, excluding the property from reassessment. Proposition 193 expands this allowance to allow grandparents to transfer property to grandchildren.
Get Good Advice
If you are concerned about passing down your assets to future generations, or if you are a child or grandchild receiving an inheritance, the qualified Torrance estate planning attorney at the Law Offices of James C. Shields can help you navigate the complicated landscape of tax law and plan for your future. Contact us today.
