Tax-Smart Strategies: Is Now a Good Time to Give Financial Gifts?
As part of a four-article series on tax-smart strategies, this blog post covers three scenarios for tax-efficient gifting of cash or securities to loved ones and charities.
If you plan on giving a gift of cash or securities to your heirs or a charitable cause, there may be strategic opportunities from a tax perspective. In this blog post, part of a four-article series on tax-smart strategies, we will look at scenarios that might make sense for you.
Not all gifts are treated equally when it comes to taxation. What you give and when you give it can have a material impact on the after-tax outcome for you and your family. Here are three potentially advantageous giving scenarios and some guidance on how you might take advantage of them.
1. Giving securities to heirs when the market is down
If you anticipate bequeathing a large taxable estate and some of your investment securities have recently declined in value, it might make sense to gift them to your heirs now instead of later.
True, you will end up triggering a taxable gift on any amount of gifted securities in excess of $18,000 per child (this upper limit applies to gifts made in 2024), but it may be preferable to pay tax on what the investments are worth today rather than what they might be worth further down the road.1
By giving away the securities now, the subsequent value recovery will occur in the hands of the recipient instead of within your taxable estate.
2. Giving cash or securities before tax rates go up
If you expect your estate to be worth much more than $5 million, there may be another reason to consider gifting cash or securities sooner rather than later. That’s because the lifetime exemption in 2024 for estate tax is $13.61 million for individuals (or $27.22 million for married couples), thanks to the 2017 Tax Cuts and Jobs Act.2 But, starting in 2026, it’s expected to return to the pre-2018 level of $5 million, adjusted forward for inflation.3
Making large gifts now, with the higher estate exclusion amount, could go a long way toward preserving family wealth. Making the same gift in 2026 or later, when the lifetime exclusion amount drops back to the old levels, could come with a hefty gift tax.
3. Giving to charity when you must make an IRA withdrawal
If you own an IRA and are subject to a Required Minimum Distribution (RMD) that you don’t actually need in order to fund your lifestyle, you might consider using a Qualified Charitable Distribution (QCD) to make a gift to charity directly from your IRA account. This may allow you to sidestep some or all of the income tax you might have otherwise paid.
Normally, distributions from IRAs are taxable income, but a properly executed QCD allows that income to be excluded from taxation, which may also lower taxes on other sources of income.. This might provide tax relief on qualified dividends and capital gains and keep you in a lower bracket for expenses like Medicare premiums.4
Keep in mind that QCDs are currently limited to $105,000 per year per person. You must already be age 70 ½ at the time of the distribution (not merely turning 70 ½ later that calendar year).5 And it’s important that the payment go directly from your IRA to the charity without you touching the funds.
If your plans around gifting cash or securities to your heirs or charitable causes are not yet in sharp focus, you might consider speaking with your Corient Wealth Advisor about how changing market conditions and tax rules might impact your strategy for giving. A bit of planning and the right advice could make a meaningful impact on your family’s wealth for generations to come.
Other articles in this series
- Are You Maximizing Tax-Advantaged Accounts?
- Why Consider a Roth IRA Conversion Now?
- Can You Take Advantage of Tax-Loss Harvesting?
1 https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
2 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
3 https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
4 https://www.irs.gov/newsroom/reminder-to-ira-owners-age-70-and-a-half-or-over-qualified-charitable-distributions-are-great-options-for-making-tax-free-gifts-to-charity
5 https://www.forbes.com/sites/bobcarlson/2024/01/24/here-are-6-ira-moves-to-take-in-2024-that-you-should-review-now/?sh=4d2a52721d18
ABOUT THE AUTHOR
Matt Foltz
Matt is a Partner, Wealth Advisor in our Itasca office. He also serves on the Investments team. Previously, Matt worked at legacy firm BDF, where he sat on the firm’s Financial Planning Committee and led many of the firm’s tax-related initiatives. He has a passion for building strong relationships with his clients and helping them make sound decisions. Matt holds the Certified Exit Planning Advisor® designation, which helps him advise business owners on how to exit their business and prepare for retirement.
