Making gifts to loved ones does not necessarily mean handing them cash or writing them a check .
Promotes Happiness ,” Science , Vol . 319 , Issue 5870 , March 21 , 2008 ; Harbaugh W , Mayr U , Burghart D , “ Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations ,” Science , Vol . 316 , Issue 5831 , June 15 , 2007 ). Moreover , avoiding the topic of wealth transfer — to family members and to charity — could create more problems down the road . Even if family members
Making gifts to loved ones does not necessarily mean handing them cash or writing them a check . Instead of giving assets directly outright , gifts can be set up during lifetime for tax purposes by using trusts . In addition to tax benefits , those trusts can also be used to preserve assets as a safety net for the beneficiary ’ s lifetime — in other words , moderate how much is available to beneficiaries based an income , gift , estate and GST tax perspective , it is important to work with good advisers to structure charitable gifts in the most tax efficient manner . While a common approach is to set aside a portion of income for charity , a more recent approach among some families is to treat charity like a child when determining overall giving . For instance , a family with three children could set
Making gifts to loved ones does not necessarily mean handing them cash or writing them a check .
get along , they might all end up fighting with each other over assets if they are not prepared for the wealth .
Before making any gift , it ’ s important to prepare family members for that gift from a financial , psychological and emotional perspective . There is not one perfect age at which to directly give money to a child or grandchild . Some young adults are perfectly equipped to manage millions of dollars in their 20s , while older adults might blow it all within a few years .
The appropriate time to give is only when they are ready . By starting with gifts of smaller amounts at younger ages , the next generation can learn to manage the wealth in an effective and healthy manner , develop greater responsibility and become good stewards of the wealth in the future .
How Should I Give ? An individual can give up to $ 18,000 to as many people as they want per year — the annual exclusion amount as of 2024 — without any need to report the gift for tax purposes on a Form 709 , United States Gift ( and Generation-Skipping Transfer ) Tax Return . In addition , individuals can pay anyone ’ s tuition or health care expenses directly without it counting toward their annual exclusion amount or lifetime exemption amount . on personal circumstances , such as supplemental income for education or consumption . Furthermore , trusts — along with the guidance and protection of a corporate trustee — also could provide beneficiaries with additional asset protection from potential creditors or even possible divorce in the future .
Setting aside gifts in trust now does not mean telling beneficiaries about the gift or handing them copies of account statements or balance sheets . While most states require that trust beneficiaries receive certain notices about a trust and the trust ’ s assets , there are some states — such as Delaware — that have special “ silent trust ” rules , which allow the grantor to keep information private .
To Whom Should I Give ? Balancing equal with equitable can be a major planning challenge while trying to preserve family harmony . Differences in means and needs requires each family to determine what fair means to them . For example , family members with special needs may require additional financial assistance . At the same time , individuals who are financially successful now might need more support down the road due to a potential health condition or financial hardship in the future .
For many families , charity is often part of the overall wealth plan . From aside 25 percent for charity and the remaining 75 percent for the children . A family philanthropy program also could be created so that generations can work together to support the family ’ s legacy .
Where Do I Go from Here ? Providing wealth to loved ones should truly be a gift , not simply a mechanical transfer of assets . If done correctly after preparing those loved ones for the wealth , it could provide a better quality of life , save on taxes and prevent the negative impacts on those who are unprepared for the wealth . A collaborative team of advisers can help families prepare future generations as part of an ongoing process .
As Nathan Mayer Rothschild , son of the founder of the Rothschild banking dynasty , once said , “ It requires a great deal of boldness and a great deal of caution to make a great fortune ; and when you have got it , it requires ten times as much wit to keep it .”
Justin Miller , J . D ., CFP ®, is a partner and national director of wealth planning with Evercore Wealth Management , an adjunct professor at Golden Gate University , a Fellow of the American College of Trust and Estate Counsel and a member of the CalCPA Estate Planning Committee . You can reach him at justin . miller @ evercore . com . www . calcpa . org MARCH / APRIL 2024 CALIFORNIA CPA 13