In 2019, the exclusion to the gift tax was $15,000 per recipient per year ($30,000 for a married couple per recipient). You can make up to this gift amount to as many people as you would like each year without paying any taxes. These gifts also do not count towards the lifetime exemption. Gifting always you to reduce you taxable estate while at the same time see the benefit your beneficiaries derive from the gift. One significant consideration needs to be mentioned in reference to highly appreciated property. If you transfer the property while you are alive, you also transfer your cost basis. On the other hand, if you transfer the property at your death, the recipient will receive a ‘step up’ in basis to the fair market value on the date of the death, which can translate into significant capital gains tax savings. For example, if you give your child $10,000 worth of stock that you purchased at $2,000, your child will be responsible for paying a capital gains tax on $8,000 profit if he or she immediately sells. If your child received the same amount of stock at your death and again immediately sells, his or her tax basis would be $10,000 and not your cost basis of $2,000, thereby negating any capital gains tax.
2.) Unlimited direct payments to qualified medical and educational institutions
You can also directly pay any IRS-qualified physician, hospital, school or college on behalf of anyone else. This amount is separate from the annual gifting tax exclusion. In essence, you could pay your for your grandchild’s college tuition and gift him or her $15,000 per year. These payments have the added benefit of not reducing your lifetime exclusion.
3.) Charitable giving
Gifts to charities at death are fully deductible from estate taxes. There are many options for giving to a charity including a charitable lead trust (CLT) and a charitable remainder trust (CRT). A CLT is set up so that a charity of your choice will receive annuity payments for a specified term and at the end of the term your heirs will receive the remainder. A CRT is set up to pay income to beneficiaries for a term and at the end of that term the remainder passes onto a chosen charity.
4.) Qualified personal residence trust (QPRT)
A QPRT involves transferring your home into a trust, removing the value of your residence from inclusion in your estate. You are still able to live in the house for specified term and at the end of the term, the house is transferred to your beneficiary. You can then pay a fair market rent to stay in the house. If you do not survive the QPRT term, the value of the residence stays in your estate.