When you think of December as the season of giving, you might just mean “giving” in terms of the pile of gifts under the Christmas tree. And, whether you’re doing your Christmas shopping online or braving the crowded stores this month, your family and friends will no doubt love the gift you give them. However, the usual holiday fanfare is not the only way you can celebrate the season of giving. Looking to the future presents a great opportunity to use your estate plan and tax savvy to give long-lasting gifts. Here’s how:
The Gift Tax Has Changed (For the Better!)
There have been major tax changes recently, particularly with the passage of the Tax Cuts and Jobs Act last December. The gift tax went up from $14,000 to $15,000 per person. While that might not seem like a lot, keep in mind that the tax was stuck at $14K for five years, and $15K is the highest it’s ever been. So, comparatively, it’s a pretty big deal.
Don’t forget that the usual gifts are still exempt. These include gifts between spouses, gifts directly made to a health care provider for medical purposes, gifts made for educational reasons to an educational institution, and, of course, gifts to charities. Remember: the gift tax applies to the person giving the gift, not the receiver.
Update Your Estate Plan
A way to make Christmas more permanent and lasting is to update your estate plan to reflect more assets transferred to your family after you die. If you have a plan for your home and valuables and want to make sure that it is carried out, you should definitely include those directions in your estate plan. An estate planner will help you manage your estate in a way that will keep it out of the clutches of probate court.
Consider a 529 Form
A 529 plan is one of the IRS’s rare, drawback-free gifts to the taxpayer. The 529 form is a savings plan that gives you tax breaks for saving up for your child’s education. 529 forms are also called “qualified tuition plans.” These qualified tuition plans benefit both you and your child. Your child’s college financing will get a head start, while you aren’t saddled with a huge tax bill for saving up. This is an excellent Christmas present that will pay off in the long run.
Charitable Tax Deductions Have Increased, Too!
As mentioned above, the Tax Cuts and Jobs Act led to tax deductions not just for gifts, but also for charities as well. Before, you could only deduct 50% of a charitable donation on your taxes. Now, you can deduct 60% of the donation from your taxes. This encourages generous donations to your favorite charities. It’s a way to give a holiday present to those in need without including the IRS on your charity list.
Think About Setting Up a Trust
Going back to the estate plan, a trust (a tri-party fiduciary relationship) is an excellent way to give someone a gift that will stay out of probate court after you pass away. When you set up a trust, you are the donor. You transfer the property you want to give to the beneficiary to a trustee. The trustee then, at your direction, gives the property to the beneficiary. This trust goes into effect immediately. This is a tool for estate planning that can also function as an excellent gift with a lot of longevity for your transferee.
New Family Members? No Problem
Another way you can give gifts to your family is by including new members in your estate plan. Weddings and births happen all the time. Encompassing these new family members into your estate plan ensures that they’ll get part of your estate after you pass on. This is a way to include someone and make them feel like they’re part of the family, all while making good financial sense and keeping your possessions out of the state’s hands after you pass away.
As you can see, there’s more you can do to celebrate the season of giving besides the usual Christmas shopping. If you want a permanent way to make sure that any gifts you have are long-lasting, update your estate plan. And don’t forget to take advantage of the tax deductions that have just passed recently. Merry Christmas!