Here Comes Tax-y Claus: ‘Tis the Season for Giving – And Protecting Your Estate

Here Comes Tax-y Claus: ‘Tis the Season for Giving – And Protecting Your Estate

It seems pretty certain, as far as we know, that Joe Biden and Kamala Harris will soon be spending business hours in the White House.

What will they do first, we wonder?

We’ve a pretty good idea: roll back the Tax Cuts and Jobs Act of 2017, with all speed. I’ve quoted the line twice already, so this will make it an uneven three: VP-elect Harris, in a debate with Mike Pence, told all who would listen: “On day one, Joe Biden will repeal that tax bill – he’ll get rid of it.”

I repeat it with reason, which should be quite clear; expect higher taxes in the roaring new year. The estate-tax exemption is set fresh for the axe; the rich folks who love it can expect some harsh whacks. And to all a good night, if you ignore it.

Surely, things might not spin out in line with the playbook. Republicans have Senate control, as far as I can plumb, and they’re already in we’ll-show-you-who’s-Rudolf resistance mode. I cannot proffer a cogent prediction.

I will tell you this: conditions are excellent this very-merry moment to advantage yourself of a gift- and estate-tax exemption of frightful-or-delightful proportions. This assessment depends on whether you’re Grinchy-left or Cindy-Lou Who-right – accuse me of bias and I’ll hand you a candy cane: I simply don’t like taxes. They hardly reflect the Christmas spirit.

And it is Christmas, and Hanukkah besides, so our minds turn all generous and gift-giving abides. Make this year a big one, if you can – people near and dear and strangers deserving all need help. Wealthy clients – in particular, those interested in hedge-trimming their estates – should dig deep, I say, and they’ll benefit sure as Santa’s boots. Let’s talk now about filling some stockings, including your own, via tax-exempt giving.

First up, you can share annual exclusion gifts. The exclusion today is $15,000. That’s per-person, tax-exempt for the recipient. There are no reporting requirements to the IRS for this form of giving. However, if a married couple doubles up and provides, say, their eldest child with $30,000, there is a reporting requirement via Form 709. Exclusion gifts are a wonderful way to help the kids while you’re around to hear ‘thanks’, and if you nearly forget the middle child (that’s me; I know the drill), it’s OK – just get the check down the chimney before Christmas, if even with seconds to spare. With the help of our therapists, we understand all.

Gifts to charities and political organizations are tax exempt, too, as are gifts to spouses, so long as they’re US citizens.

Here’s a strategy I just learned: you can provide direct gifts to educational or medical institutions. There is no limit, and recipients will benefit tax-free. Tuition and medical expenses can be covered this way – you’re paying for services, not individuals – for whoever, and for as many people as you choose, so long as the money goes directly to the institution. Again, there is no reporting requirement and the gifts don’t cut into your overall gift and estate-tax exclusion.

Next, the lifetime gift and estate-tax exclusion, which sits at $11,580,000, and twice that for marrieds. Talk to your estate planner, carefully consider options, don’t do anything rash – but do something soon with this elevated exclusion, before anyone cancels it out. The IRS has promised that if changes are made – recall, the old exclusion amount was around half the current figure – they won’t try to claw-up your back. Get active on planning or you might end up humbugged next year.

In a pinch, you can always leave the full exclusion amount to a spouse. This makes sense, as the surviving half-a-couple is allowed to use a double exclusion: $23,160,000, a useful sum in the eyes of some, but a red-nosed target bead in certain political eyes. This can help reduce estate taxes, though the eventual inheritors might be in for a transfer-tax blow. This is why it’s so smart to gift while you’re alive – more fun, too. There’s nothing like watching the kids ripping the gift wrap.

Let’s say you’re so wealthy the exclusions don’t suffice. It might sound unlikely, but millionaires nowadays are common as sugar cookies at holiday time, and I’ve met my own share of billionaires. If you ever dine with one, I have two recommendations: first, try not to break anything. One time, I nearly sat down – that’s what chairs are for, yes? No – not the one I’d chosen: it was an original from the Roman Senate, 2nd century BC. Ave, take good care. Second, keep a keen eye on the art. I was dining in a room full of paintings, and one somehow distracted me from my lamb chops – it was that striking, that colorful vision o’er yonder. The host caught my eye, smiled and said, “Go look.” Hmm, what’s this autograph? Ah, yes – Matisse. After the lamb, he showed me an art book in which the picture was listed as “missing.” Naturally, I’m mum, but I’m telling you: some wealthy folks – good eaters; deserving – have pockets bulging to burst. What should they do if the exclusion’s too paltry?

Taxable gifts are the answer – sounds mad, but it may work. The estate-tax rate is 40%. What are we, Europeans? The rate on taxable gifts is usually much lower. Make careful arrangements, help someone out, pay the gift tax and come out ahead. This strategy requires very experienced players to guide your course, so consult with the experts.

Whatever the case in the next couple of years, recall this: the TCJA’s high exclusions sunset at midnight on December 31, 2025. Some may feel there’s still time to think. I say, if we’ve learned anything from old Scrooge 2020, it’s this: if you want all things merry and bright, plan for the coal-blackest worst. So get the tree up, and get cracking

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