Many people who create an estate plan in Florida include gift planning as a key part of their efforts. In this week’s blog post in our ongoing series on basic questions about estate planning in Florida, we are going to take a closer look at gift planning and what it involves. While a good gift plan can be an essential part of estate planning, these are not always necessary tools. This is why it is always important to speak to your estate planning attorney about your planning options to determine if a good gift plan is something you should or should not include.
What is gift planning?
As the name implies, gift planning is simply the process in which you determine the best way to give gifts as a part of your estate plan. A gift can be given both before and after you die, but are most often given while you are still alive. You can give gifts in addition to, or in lieu of, leaving inheritances. Also, you can give gifts for a variety of reasons.
For example, many people choose to give lifetime gifts because they want to see their family and loved ones enjoy their inheritances while they are still alive to witness it. Other people give gifts because they feel that charitable donations are important and want to make them a key part of their estate or inheritance plans. Still, others give gifts because they want to reduce their estate’s exposure to estate taxes, and giving the appropriate gift can significantly reduce how much your estate might have to pay.
How do gifts affect your estate taxes?
The estate tax is a federal tax that applies to the property left behind by deceased people. Before that property gets distributed to new owners, the person managing the property, known as the personal representative or estate administrator, has to determine if the estate must pay taxes. If so, the administrator will use the estate property to pay those taxes, and only then will he or she distribute the remaining property as inheritances.
Determining if your estate has to pay estate taxes, and how much it is likely to pay, can be a complicated calculation. However, if you determine that your estate will likely have to pay at least some money in estate taxes, you can use a good gift plan to effectively reduce, and potentially eliminate, the potential tax bill.
Though the process is a little complicated, a good gift plan basically allows you to give property away while you are alive. As long as you don’t exceed a specific amount, the gifts you give will not be counted against your taxable estate. So, instead of waiting to distribute the entire estate after you die, and potentially incurring a tax bill because of it, you can give gifts away while you are still alive to reduce the amount of estate taxes that might apply.