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4 examples of non-taxable gifts in your estate plan

On Behalf of | Jul 7, 2023 | Estate Planning |

Creating an estate plan gives you control over what happens to your property if you become incapacitated as well as after your death. A well-crafted estate plan can help reduce or eliminate taxes, ensuring more of your wealth goes to your loved ones. One strategy to minimize estate taxes is to give non-taxable gifts.

Non-taxable gifts are those that do not trigger a gift tax. Neither you nor the recipient have to pay tax on the transfer. Here are some examples of non-taxable gifts you can include in your estate plan.

1. Direct payments for educational expenses

You can make direct payments for someone else’s tuition without incurring the gift tax. This has to be a direct payment to an educational institution for tuition. This does not cover other expenses like books, supplies, room and board or tuition paid to a trust or to the student.

2. Medical expense payments

You can pay for someone else’s medical expenses without triggering the gift tax. Make these payments directly to the medical institution or healthcare provider. This strategy can include payments for procedures, hospital stays or even health insurance premiums.

3. Gifts to your spouse

You can give unlimited gifts to your spouse without incurring the gift tax, as long as your spouse is a U.S. citizen. This rule, known as the unlimited marital deduction, can be a powerful tool in estate planning, and is often used in conjunction with advanced planning techniques such as the Spousal Lifetime Access Trust.

4. Annual gift tax exclusion

Each year, you can give a certain amount of money (called the gift tax annual exclusion) to as many individuals as you wish without triggering the gift tax. This amount changes frequently as it is based on the annual federal cost of living adjustment. It is currently $17,000 (2023) per person per year.

Using these non-taxable gifts in your estate plan can be an effective way to pass on more of your wealth to your loved ones. Remember, your goal is not only to create wealth but also to preserve it for the future.