With the holidays just around the corner, I’d like to offer you the following tongue-in-cheek guide: Dos and Don’ts: An Estate Planning Attorney’s Guidebook to Holiday Gifts.
Gift Taxes: Presently, the IRS allows an individual to gift up to $12.06 million over the course of his or her lifetime (“Lifetime Gift Tax Exclusion”) without having to pay the federal gift tax. Each year, you may generously distribute tax-free gifts of up to $16,000 ($17,000 starting in 2023) to as many recipients as you would like (including your sometimes ungrateful children), provided you have not exhausted your Lifetime Gift Tax Exclusion. Thus, this holiday season:
Do: Give your child $16,000 ($32,000 per married couple)
Do Not: Give your child $16,001 ($32,001 per married couple)
Gifts of Real Property: As an alternative to creating a comprehensive estate plan and placing real property in trust, clients often ask whether placing a child on title to real property is a viable means by which to avoid probate. Assuming your child does not predecease you and you correctly place him or her on title as a joint tenant, the property will not be subject to probate court because property held in joint tenancy passes to the surviving joint tenant by operation of law. However, while you may avoid probate, placing your child on title to your property creates numerous other issues such as: (1) property tax reassessment; (2) exposing your property to legal liability or creditor claims; and (3) losing potential income tax advantages given to those who inherit property. Thus, if you intend to gift your child real property this holiday season:
Do: Create a comprehensive estate plan and name him or her as the beneficiary of your trust.
Do Not: Place your child on your property’s title.
Although this article is written partially in jest, by following these simple steps this holiday season, you can give your children the gift of proper planning by not exposing yourself to numerous common legal and financial pitfalls potentially associated with your generosity.