Today’s gifts might be tomorrow’s treasures. With the $12.92 million lifetime estate and gift tax exemption and the $17,000 annual gift tax exclusion being at all-time highs and indexed for inflation, many advisers are recommending families review their willingness and ability to develop an annual gifting plan and implement more substantial gifting strategies. Under the 2017 Tax Cuts and Jobs Act, the estate and gift tax exemption amount is scheduled to sunset on Dec. 31, 2025, reverting such exemption amount to the 2017 amount of $5 million, adjusted for inflation. Families may consider: the power of leveraging the number, types, and timing for these gifts; the effectiveness of gifting depressed assets and those expected to appreciate with the utility of properly verified discounts for these assets; and the options for structuring a gift into a trust.

Power of Compounding

Giving assets to loved ones has not only immediate but also long-term benefits for the donor and the donee. The donor may experience psychological benefits from giving during her lifetime, such as seeing others enjoy and appreciate using the assets, whether cash, securities, or physical assets. The donor may also benefit from reducing her taxable estate, both for federal purposes, and, to the extent applicable, state purposes. For Pennsylvania inheritance tax purposes, however, the value of a gift made within a 12-month period prior to death may be includible in the donor’s taxable estate, less an applicable exclusion. For example, if the donor establishes an irrevocable trust for her son, for which contributions qualify as a present interest, and transfers the annual gift tax exclusion amount to such trust each year, after 20 years, the donor may transfer close to $400,000 to the donee (Trust #1); if the donor is married, utilizing the gift-splitting election, her and her spouse may transfer close to $800,000 to the donee (Trust #2), without using either of their lifetime estate and gift tax exemptions.