The Gift of Giving
Many families make a regular practice of giving financial assets, such as cash and appreciated securities, to loved ones and special causes that reflect their personal values and interests. We’re delighted to help guide conversations around a wide range of gifting options.
Tax laws and market cycles evolve over time, and so may your needs and preferences about charitable recipients. But as long as you wish to support people and causes that matter to you, it’s worth staying in touch with your Wealth Advisor on the potential to benefit from the giving-related ideas in this article.
One thing before we start: The IRS allows you to give tax-free gifts that count against what you would otherwise leave to your loved ones at death.1 With federal estate tax shelter amounts facing a potentially significant reduction in the near term,2 you may wish to consider accelerating a transfer of wealth to the people you care about if they might make better use of gifted assets today rather than later.
Marital/Family trust
If you and your spouse wonder about the potential impact of estate taxes when you’re gone, your estate planning attorney can walk you through the basics of marital/family (or “A/B”) trusts. These remain a durable mechanism for taking advantage of how much any one person is able to shelter from estate tax.3 Let us know if we can facilitate a conversation for you on this topic.
Annual federal gift tax exclusion
In 2024, the annual limit for gifts to any other individual increased to $18,000 from any one person ($36,000 from a married couple).4 This may be an appealing and “frictionless” way to convey financial support to people you care about, with no taxes owed by either party. This could also be a highly valuable tax break worth exploring.
Funding charitable gifts
If you have charitable giving recipients in mind, two of the more popular means of funding those gifts remain annual Required Minimum Distributions (RMDs) from IRAs and donating highly appreciated securities from your taxable portfolio in lieu of cash.
Gifting RMD amounts up to $100,000 from an IRA directly to qualified organizations removes the tax that would otherwise accrue to the account owner if they took the RMD themselves.5 Qualified Charitable Distributions (QCDs) allow individuals to make charitable contributions from their RMDs without taxes and help maximize the standard deduction for their tax returns (i.e., they don’t have to clear the standard deduction hurdle to benefit from the charitable contribution).
Gifting securities with large unrealized gains allows you to make a meaningful gift while also avoiding the potential capital gain tax that would have been owed if the assets were eventually sold in a taxable account.6
Whether it’s making a QCD from RMD amounts or gifting securities that have appreciated in value, we believe that these two strategies can help support charitable organizations in a tax-efficient manner and allow your contribution to go further.
Higher education
Separate and apart from lifetime gifts and annual exclusion gifts to children and grandchildren, you may pay tuition or direct educational expenses (and medical expenses, too, for that matter) without limit and without affecting the lifetime exemption if the payment is made directly to the provider.7 Alternatively, 529 plans and Coverdell IRAs remain popular vehicles for making contributions on behalf of grandchildren and/or nieces and nephews.
Additional gifting techniques
With the help of your tax and estate planning professionals, you can explore a range of more sophisticated giving techniques, including private loans among family members, donor-advised funds, private family foundations and a variety of trusts that combine charitable and individual beneficiaries.
We welcome the opportunity to speak with you about your gifting intentions and would be happy to include your tax and estate planning experts in the conversation. Together, we can craft a customized, tax-efficient solution designed to meet your giving objectives.
1 https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
2 https://www.thinkadvisor.com/2022/12/07/the-estate-and-gift-tax-exclusion-shrinks-in-2026-whats-an-advisor-to-do/
3 https://www.investopedia.com/terms/a/a-b-trust.asp
4 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
5 https://www.forbes.com/sites/kristinmckenna/2021/08/23/how-to-donate-your-rmd-using-qualified-charitable-distributions/?sh=47847a123b5e
6 https://www.investopedia.com/qualified-charitable-distribution-qcd-5409491
7 https://www.thebalancemoney.com/annual-exclusion-from-gift-taxes-3505637#:
ABOUT THE AUTHOR
Neil Teubel, MS, CFP
Neil is a Partner, Wealth Advisor and Investments Leader in our Itasca, IL, office. His passion is helping executives, widows and retirees live full lives while navigating their wealth planning complexities. Neil has his master’s degree in financial planning and has frequently been named to both Forbes and Chicago Crain’s list of Top Wealth Advisors. He joined legacy firm BDF in 2011.