Did you know you could give away a substantial amount of money without paying the federal gift tax? If you plan on leaving wealth behind for your family or other heirs and you're worried about edging above the federal estate tax threshold and paying the whopping 40 percent tax, you might be looking at gifting money now to save your estate later. It's important to realize the ramifications of total gifting, though, because a miscalculation could leave your heirs on the hook for a great deal.
The federal gift tax laws have both annual and lifetime thresholds. You can only gift a certain amount per year to each person before taxes take hold. That amount also changes over time, which means you need to keep up with tax law if you plan on leveraging gift-giving as wealth-management and family support tool over numerous years.
You can also provide a lifetime total of up to $5.49 million (as of 2017) to each person before the tax kicks in. Most people won't have to worry about reaching such a threshold, but note that values of assets do matter. You need to understand how real estate, investments and stocks are valued when you transfer them to others and whether these things are considered part of the count for the federal gift threshold.
By working with an estate planning professional and other experienced legal and financial advisers, you can create a wealth-building and management plan that saves you thousands of dollars or more on taxes. Planning ahead also ensures you are well-financed for retirement and that you have something to leave behind to heirs.