Using Your Exclusions

The holidays are (finally) upon us and gift-giving is often the focus of many family discussions around this time. For families that have achieved a certain level of financial success, the topic may be more important this year than most, although for slightly different reasons.

It’s difficult to ignore the fact that there is a presidential election on the horizon in 2020. From a tax planning perspective, there’s a lot at stake; you have probably seen the frequent commentary regarding wealth, wealth taxes, and wealth inequality. I won’t discuss the politics here, but I will note that under the current law, most individuals can leave $11.4 million of assets to non-spouse heirs, either during life or at death. This provision of the law is currently scheduled to expire after 2025, and if control of the White House or the Congress changes as a result of the 2020 election, it could go away sooner than that.

If you and your spouse have the opportunity to take advantage of this provision of the law and haven’t done so yet, you may consider doing so this year. If the law changes in 2020 and you already gifted all that you want to give away to your family, the tax savings could be significant. I recommend starting early; if the outcome of the election signals that a change is coming, you’ll see many people trying to make changes at the last minute. Effective planning rarely happens in the eleventh hour.

Another important note: if you decide you would like to make gifts, I’d advise you to think about a lot more than just the tax ramifications. Think about what’s best for the recipients; the best structure for the gift, the best way to manage it on behalf of the beneficiaries, and other similar implications. In other words, talk with your financial advisor about how to make the gift as effective as possible. Don’t forget to convey your intentions, because beneficiaries need to know not only what you’re giving, but why you’re giving. What do you want them to do with the gift? How do you want it to make their lives better? Even if your beneficiaries are too young or not ready to hear that today, write down your goals and intentions. When the giving process is pre-planned and well thought out, the outcomes are significantly more positive for everyone involved.