The simplest way to pass on an asset is to give it directly, but this doesn’t always make the most sense. Unnecessary tax issues may apply, or you might not feel comfortable that your loved one receiving the gift is capable of planning properly.
Passing on a gift of an asset or cash to a loved one is popular this time of year. If you’ve worked hard throughout your life and hope to pass on the fruits of that labor to your grandchildren or children, it is important to think about possible tax consequences and recognize the potential for placing the gift inside a trust.
If you want to avoid parts of your asset being depleted due to avoidable tax consequences, you can use a fiduciary and legal vehicle known as a trust to transfer wealth to the next generation of beneficiaries without it necessarily being subject to federal estate taxes. It is vital to work with a qualified estate planning professional to verify this is done professionally and accurately.
You may also wish to work with your financial advisor to help ensure that this addresses the needs in your overall financial plan. A gift giver would need to cover a gift tax exclusion amount over $16,000 for 2022 or $17,000 for 2023.
If you make a gift to a beneficiary that exceeds the annual gift tax exemption, you would have to pay a gift tax which is why many people choose to transfer on this gift inside a trust as well. It can be confusing to figure out how to leverage this on your own and the most appropriate timing and strategies for passing on your assets. Set aside time to work with an estate planning professional who is familiar with these issues.