Death and Taxes

You can’t take it with you, but you can bring some much-needed certainty, rationality and control to your estate’s final resting place

By Jean Chatzky
Photograph: Illustrated by Thomas Fuchs

Since every person is allowed to give a maximum of $13,000 a year to anybody without incurring gift taxes, Colleen Barney, coauthor of Best Intentions, a book on estate planning, suggests these guidelines: If you’re 40 or older and you have more than $10 million in assets, think about giving away more than that $13,000 a year (once you exceed your $5 million exemption, you’ll have to pay taxes, currently 35 percent, on anything above that amount). If you have less than $10 million but at least a few million (or if you’re sure you have enough money to sustain you and a spouse even in the case of a long-term illness), then you can consider making a few annual $13,000 gifts. (If your assets don’t add up to millions, you’re probably better off focusing on your own retirement rather than on gifts to your heirs.)

You have a lot of freedom in how to bestow your gift. You could help your -children start a business or buy a house. You could put money into a grandchild’s 529 account for college. You could use the money to build a bigger inheritance by buying one of the permanent life insurance policies discussed earlier. But be careful: If you’re not sure you can afford to give a $13,000 gift every year, don’t lock yourself into a regular payment, like a life insurance premium or school tuition. Instead, give the money as a onetime event.


Are there some assets that are better to give away now?
Yes. If you own real estate or stocks that you expect will go way up in value, you can save your heirs a lot of tax pain by passing along those assets now. Let’s say you own a house that’s worth $1 million today. If you died tomorrow, your kids would inherit a million-dollar asset, which would eat up one fifth of their $5 million tax exemption. If that house appreciates and is worth $3 million by the time you die, it could eat up three fifths of the exemption. So giving it away today would make sense. But since you still need a house to live in, you can’t just sign over the deed to your kids. Instead, Barney says, you could set up a qualified personal residence trust that holds the deed and allows you to live in the house for a certain number of years. Similar trusts can protect other assets. For instance, Barney puts shares of stock in companies that are about to go public into grantor retained annuity trusts; those trusts allow her clients to give away the investment at its current, low value rather than at the higher value that it will presumably reach later.

Read more on how to handle inheritance in this web extra.

Check out more of Jean Chatzky's columns here.

First Published June 7, 2011

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