What Seniors Need to Know About Strategic Gifting

While Pennsylvania does not have an estate tax, this doesn’t mean that Pennsylvanians don’t need to worry about the estate tax. This is because Pennsylvania assesses an inheritance tax on any inherited assets, and the federal estate tax applies to Pennsylvania residents. Thus, individuals and families with significant assets must be aware of the tax ramifications of their estate plan. Strategic gifting is one of the easiest and most effective ways to reduce the value of an estate. If done correctly, strategic gifting allows individuals and families to make gifts during their lifetime to reduce the impact of inheritance and estate taxes upon their death.

The IRS allows taxpayers to make unlimited gifts each year, provided each gift amount does not exceed the annual gift tax exclusion. There are no tax consequences when you make a gift valued at less than the annual exclusion. Beginning in 2022, the IRS allows individuals to make gifts of up to $16,000 (for 2021, the limit was $15,000). This limit applies to each individual so that a couple can gift as much as $32,000 each year without any tax consequences. Notably, the recipient of a gift valued at less than the exclusion does not pay tax on the gift either. Thus, when a strategic gifting plan is started early enough, it can significantly reduce an estate’s value.

Of course, you can make gifts larger than $16,000. However, when you make a gift over $16,000, any portion of the gift that exceeds the exclusion amount counts towards the lifetime gift tax exemption. Currently, the lifetime gift tax exemption is $12.06 million. However, this doesn’t necessarily mean you should gift up to $12.06 million because the gift tax exemption is shared with the estate tax exemption. In other words, you can pass on up to $12.06 million estate tax-free upon your death unless you made any gifts in excess of the annual gift tax exclusion. If you made gifts over the annual gift-tax exclusion, the value of those gifts counts towards the estate and gift tax exclusion. This will limit the amount you can pass on upon death without incurring estate tax.

If you have questions about strategic gifting, elder law and estate planning attorneys can help you find the answers and develop an effective plan you feel comfortable with. Aging brings uncertainty, but there is no need for your family’s financial future needs to be among the things you worry about. At the Hazen Law Group, our dedicated Harrisburg elder law attorneys have extensive experience working with families from all backgrounds and income levels to help them navigate the complex estate planning and tax planning processes. The founder of Hazen Law Group, Attorney Marielle Hazen, is a Certified Elder Law Attorney by the National Elder Law Foundation and has been named one of the top 50 women lawyers in Pennsylvania. To learn more about how we can help you plan for your family’s future, call 717-540-4332 to schedule a consultation with one of our compassionate attorneys today. You can also reach us through our online form.

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