Annual Exclusion Gifting – A Legacy Building Tool

As we approach the fourth quarter of 2023, clients will start receiving end-of-year checklists from their financial advisors, CPAs, and attorneys. One item we strongly recommend be added to these lists, which may require the coordination of all a client’s team of advisors, is Annual Exclusion Gifting.

Annual Exclusion Gifting is a small, but powerful, tool that should be part of a client’s “legacy building” tool belt. For 2023, an individual can gift up to $17,000 to as many different people they want while not eating in to their Estate & Gift Tax Exemption Amount. This is essentially a “freebie” gifting option that expires at the end of each year. Utilized over a long period of time with appreciable assets, this strategy can move millions of dollars worth of assets through to the next generation without even touching a client’s Gift Tax Exemption Amount.

By way of example, consider a family of 5 (mother, father, and 3 young children). Each year, the parents can gift a combined $102,000 to their children using the Annual Exclusion. If the parents do this each year for 40 years, over $4M can be passed using this technique outside of the estate and gift tax system while still leaving the parents with their full Estate & Gift Tax Exemption Amount, untouched. Furthermore, all future appreciation on those gifts also pass gift and estate tax free as well. When families grow and grandbabies arrive, even more can be used to shift generational wealth through this technique.

When implementing Annul Exclusion Gifting, it is important to plan with your team of advisors and select the proper vehicles to use for gifting (SLATs, Family Limited Partnerships with Voting/Non-Voting Units, Children’s Trusts, etc.) and target appreciable assets that will grow over time. Here at Stewart Law, we’d love the opportunity work with your advisors and help plan and grow your family’s legacy through these techniques.

 

About the Author

John J. Long, Jr.,  JD
Partner