Year-End Gifting

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As the air turns cooler and the days grow shorter, our minds quickly turn to the final months of the year, with thoughts of writing wish lists and the ensuing rush of gift buying for the holiday season.  One gesture you may wish to consider, that would outlast a stylish sweater or the latest electronic gadget, is a non-charitable or charitable gift.

Gifting can be a powerful estate planning tool, allowing you to transfer wealth to others during your lifetime, as opposed to at your death.  You may choose to make a lifetime gift for personal gratification, such as helping a son or daughter with a down payment on a home or funding an education plan for a young grandchild. Or you may do it for tax reasons, taking advantage of the annual gift tax exclusion (currently $14,000 per donee, to an unlimited number of donees).  Many people who make lifetime gifts are motivated by a combination of nontax and tax factors.

In the spirit of the holiday season, many gift givers enjoy the satisfaction of seeing the recipient enjoy their generosity or witnessing the lessening of a burden while providing financial security and a more worry-free life.  Giving away assets while you are alive allows you to decide who receives what property, provides a significant level of control over how your estate is distributed, and will reduce probate costs since property given away during your life is generally not included in your probate estate at death.

One of the more common reasons for gifting is to remove an appreciating asset from your estate.  Real estate, common stocks and antiques are all likely to appreciate over time.  By giving away this kind of property, you are removing the appreciation from your estate at your passing when these assets will likely have grown in value.

For people with a strong interest in charity, lifetime gifts to a charitable organization may be more productive than donations made at death because these gifts are generally fully deductible from both federal gift tax and federal income tax.  Since charitable donations are income tax deductible, you essentially receive a double tax benefit if you are inclined to make these kinds of gifts during your lifetime.

If you are an IRA owner and age 70 ½ or older, you can take advantage of a provision in the tax code that allows you to make a direct transfer to a qualified charity in any amount up to $100,000 without having to pay income taxes on the distribution.  This is an important advantage for a charitably minded IRA owner who doesn’t need his or her required minimum distribution (RMD) for living expenses.  Bear in mind you cannot claim the qualified distribution as a charitable tax deduction since you are receiving the benefit of the amount being excluded from your taxable income.  However, in deciding to avail yourself of this opportunity, you enjoy two appealing advantages: You satisfy the removal of the required minimum distribution from your IRA and you pay no income taxes on the amount.

Even though most gifting is completed in the final three months of the year, these ideas are not meant to be an exhaustive list of possibilities.  We would certainly encourage you to consult with your tax and or legal advisor prior to making a decision to ensure the best outcome for you, financially.  Especially with respect to gifts made in kind (not made in cash), it is better to initiate these by the beginning of December to ensure proper delivery before year-end. 

Julie O’Rourke, CFA, CFP® is an Executive Vice President, Senior Trust & Investment Division Manager at Alpine Trust & Investment Group. 

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