As your wealth accumulates and you begin to plan for later years, the specter of estate tax may rise up to haunt you. To sidestep its ominous effects, give money to your children before you die. Making gifts to minors involves creating a trust, a legal structure to contain the gifts, but for kids who are 18 or older, the process is easier and more direct.
Check in with a tax and/or estate lawyer. Estate tax avoidance strategy is best pursued on the advice of professionals. Ideally, you and your advisor will put together a timeline of cash and property gifts that will winnow the size of your estate, directing it toward your family and frustrating the estate tax collector.
Give $13,000 per year to your adult children. If you're married, according to Nolo.com, each parent can give $13,000 per year, for a total of $26,000 per child, without incurring any tax liability. The $13,000 can be in the form of cash or property, such as real estate or stock.
Time your gifts to coincide with the tax year delimiter. For example, if you and your spouse elect to give a total of $50,000 to your 28-year-old child, consider writing a check for $25,000 near the end of one calendar year and another $25,000 at the start of the following year. If you give the $50,000 in a single tax year, you will be liable for gift tax on $24,000.
- As of 2012, the IRS allows you to gift $5,120,000 during your lifetime before you incur any gift tax. However, if during a single calendar year, you give any individual more than $13,000 ($26,000 for married givers), you have to file Form 709 with your tax return. Though you won't owe any tax until you exceed the $5.12 million limit, you still have to file the form.