Advanced Strategies for Family Gifting and Lending

Advanced Strategies for Family Gifting and Lending

Giving your family a gift or loan of money - Advanced Financial Planning Strategies

Gifting money to your loved ones can be an excellent way to set them up for financial success. But before you write that check, there are a few things to keep in mind.

The IRS puts a ceiling on how much you can gift untaxed: In 2023, the gift tax exclusion is $17,000 per person per year (or $34,000 per person annually if you file jointly with a spouse). All in, the total lifetime gift tax exclusion for 2023 is $12.9 million for individuals and twice that for couples.

It’s possible to gift even more if you’re keeping wealth in the family. For instance, the marital deduction rule allows you to give as much money as you want to your legal spouse without any gift or estate tax strings attached. Similarly, an irrevocable marriage trust uses that unlimited marital deduction to pass your assets, including cash, on to your surviving spouse tax-free upon your death.

Another strategy to “gift above the limit” is to earmark funds for the education or medical expenses of family members. For instance, you can make a five-year accelerated gift, totaling $85,000 ($170,000 for married couples), to a beneficiary’s 529 plan. This eliminates your $17,000 annual gift exclusion for the recipient for the next five years, but it allows the money to grow tax-free for a longer period.

Non-cash gifts, including property or other eligible investments like some stocks, can also be spread out over several years—although that annual and lifetime cap applies to cash and non-cash gifts alike. All of this can help reduce the total value of your estate and minimize the taxes that might come due upon your passing.

Charitable giving and intra-family lending are two other tools to pass along wealth. These and other financial planning strategies come with additional stipulations. As always, please contact your wealth adviser to talk about the gifting options that are best for you. We’re ready to help.

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