Properly Planning Your Family Money

Many families struggle to identify just what amount of the inheritance is enough, when, and how to give it. People have been bequeathing their wealth to their loved ones, and the new tax laws under President Joe Biden permit lifetime gifts at death up to $11.7 million per individual. Under the new tax proposal, the estate tax exemption and gift tax exemption will be lowered to $3.5 million and $1 million per individual. Similarly, the law will increase the capital gains tax rate and do away with step-up income tax at death.

Under the current laws, individuals can get up to $11.7 million as lifetime gifts from their loved ones. Before the new law on tax takes effect, experts have predicted that many parents will likely gift their children assets before it takes effect. This means that if a parent gifts $5 million in assets today, it will be covered by the currently existing tax laws exemption. The appreciation of the $5 million in assets between gift time and the parent’s demise will happen in the child’s hands, saving on estate taxes.

When considering to gift a child, you should consider your family’s goals, the legacy you intend to leave, and whether the child will be responsible for such a gift. The gift channel should also be considered, whether it is in trust, an outright gift, or another business entity.

For children and grandchildren, it is advisable to gift them in trust. The gifting should include an irrevocable trust that will later benefit them. While some people may view irrevocable gifting as “controlling from the grave,” but in a real sense, it helps you to perform tax planning and other benefits. This trust trains a child how to manage assets under the trustee before becoming sole trustee later. Similarly, trust can protect your child from creditors and their spouse, who may be after the inheritance.

A family-owned business can be challenging if not all members are involved in its operations. To be safe, the business should be held to protect the gift from creditors and make the next generation’s transfer easy. A legacy is a vehicle where you can channel property and a drafted review that should be maintained throughout the generations.

David Auer is the President and Founder of Provident CPAs based in Tulsa, OK. He’s an expert on all things CPA, and author of many books. Visit DavidAuerCPA.net