Giving to Create a Legacy

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When we talk about legacy planning. We're talking about you. Typically for our clients that are independent. they're financially independent. Maybe reach the financial transcendent stage. They're talking about giving the talking about making significant gifts to family or to charity. And that's what i mean by legacy doing something to provide for others. that goes well beyond beyond our lifetime. Okay so if i am making a gift some to someone My child or in my case You know i've got a couple of grandkids. Now and i wanna give a gift to grandchild. Is that taxable to the person receiving the gift in other words. Am i going to be setting my grandchild up to have to pay taxes and not necessarily know just like if you give them a birthday present their taxed on that that gift and if you're giving them significant let's they're not necessarily taxed on that on that gift so that's a simple answer. Okay all right. Well i i know that if uncle sam head his way he might wanna show up at birthday parties and start taxing gasoline difficulty. Just just saying the attitude. He's got right now anyway. What about the person making the gift. I is there any ramifications for me if i'm if i'm gonna give a large gift like that that that's where this guy gets a little complex so possibly if the gift is large enough and i and i just want to briefly give some some basic tax concepts and some rules around that not to more people but tax planning is part of financial so we need to talk about it. The basics earned income meaning wages taxable as regular income and so his income from investments like dividends and interest. I think most of our listeners know that. And if you sell an asset that you've owned for longer than twelve months for for a gain you you've realized a long term capital gain and that gain is taxed at capital gains rates which can be lower than tax rates on on regular income. That's just the basics for larger estates and here. I'm talking about very large estates currently in excess of a million. I'm sorry eleven million. Five hundred and eighty thousand dollars for an individual and twenty three million one hundred and sixty thousand for a married couple for states in gifts in excess of that amount of the federal government is going to taxed tax the giver at forty percent well for large estates. The tax could be very significant in here. I think this is really a transfer tax not necessarily tax only a death because you're making very very large gifts that exceeds those limits. Eleven eleven million five hundred and twenty three million one hundred sixty thousand. Those are also taxed to the to the person giving not to the receiver of those assets and then another. There's another level of tax at least in seventeen states plus the district of columbia. They're going to also levy a transfer tax estate tax for example in massachusetts we haven't attacked exemption of a million dollars per person and thereafter estates are taxed at point eight percent all the way up to point all the way up to sixteen percent. Taxes can be part of the conversation and and the and the planning so back to gifting. The federal tax law says an individual can gift fifteen thousand dollars to an individual per year. You can give to your grandchild. Fifteen thousand dollars in your wife can give to your grandchild thousand dollars oak. We call this. The annual exclusion anything in excess of fifteen thousand dollars is counted against your federal lifetime. Exemption which is it which we just described that eleven million five hundred and eight thousand dollars and that so it's counted against your lifetime exemption and attacks form that discloses that gift is required if it's if it's a gift of fifteen thousand dollars or less there's no tax form if there's a gift in excess of fifteen thousand dollars per person per year calendar year then there's a form that needs to be sent to the irs. That doesn't necessarily attacks do you. And your wife give gift your daughter. Thirty thousand dollars in a calendar year. No tax forms required. But if you give her forty thousand dollars you'll need to file a gift tax form disclosing a ten thousand dollar taxable gift. Now your lifetime. Exemption is reduced by ten thousand dollars. There's no tax do over. But now you've your lifetime transfer exemption amount is is a little bit less okay a little bit more detail than you might want but it's an important nation. Yeah that's perfect. Because i think that's a huge in planning for people that can afford it. Peter i'll be honest. I'm not in this category yet right. i'm not gonna. i'm not worried about going over that thirty thousand dollars a year gift. My children or my grandchildren but there are a lot of people out there that are right and they need to know this information. They need to know that can give them an annual basis. They just need to subtracted from the total mountain and play by the rules. Because you know you don't want to get yourself in trouble for sure. I think it's important. I also just from a tax law perspective. We don't we don't know what tax laws will be in the future cert. There's certainly not static in there definitely subject to change so under under the current law the lifetime exemption amount is scheduled to reduce back to the two thousand and seventeen exemption of five million dollars per person. And that's adjusted for inflation and that starts in twenty twenty six so under current law that that lifetime exemption amount goes is reduced from almost twelve million dollars down to almost six million dollars with y when you consider inflation. What happens to those people that have already. You don't reach that that mark. Maybe they've given away eleven million and then it goes back to five million per person are they are the grandfathered in i'm using air quotes there. The grandfather dinners. They're going to be any issue with that. Oh you ask a great question. And the the irs. They have determined that. There's not going to be a clawback. So yes they can make the gift now. It will always be exempt said. It's good so again. There's there's much needed information for those people that are in this situation. There's a time limit right. I mean there's there's kind of a ticking clock on on getting those gifts to somebody before it sunsets back to a much lesser amount. So the great information

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