Gift Tax Avoidance

​If you or a well-off relative are facing the gift and estate tax, here’s a planning opportunity often overlooked: paying expenses for loved ones. Such payments, structured correctly, do not represent gifts.
 
The monies spent by you on the qualified payments reduce your net worth and taxable estate, but they do no harm to your income, gift, or estate taxes. Further, the loved one who benefits from your help does not incur any tax issues.
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As unusual as this sounds, with the qualified payments, you operate in a tax-free zone.

Even if you don’t have a gift tax problem today, use the tax-free method because, who knows, you could win the lottery tomorrow.

Gift and Estate Tax Exclusion
 
If you die in 2020, your heirs won’t pay any estate or gift taxes if your estate and taxable gifts total less than $11.58 million.
 
If you are married and have done some planning, you and your spouse can avoid estate and gift taxes on up to $23.16 million.
 
Lawmakers set the current rates with the TCJA and also set them to drop by 50 percent in 2026. Gifts made now continue as excludable should they exceed the upcoming 50 percent drop.

If you have an estate tax problem and Uncle Billy needs help with his certain bills. Don’t make a monetary gift to uncle Billy to help him. Instead, make your checks payable to the place that  are billing Uncle Billy. We will help you ensure those bills are qualifying bills. 

Even if you don’t have a gift tax problem today, use the tax-free method because, who knows, you could win the lottery tomorrow.

Sure, you have an $11.58 million estate and gift tax exemption this year. In 2026, that’s scheduled to drop by 50 percent (adjusted for inflation). But the current deficit issues could trigger a drop to, say, the 2008 exemption amount of $2 million, or lower.

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If you have questions about the qualified payment strategy, please contact us.

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