Making the Most of Lifetime Gifts for the Next Generation

As Beverly nears her 60th birthday and the vesting of her performance awards, she plans to meet with her estate planning attorney to get her affairs in order. She wants to use the value of her performance shares to include her loved ones in her estate plan.

Making lifetime gifts can play an effective role in estate tax planning. This approach can help you decrease the taxable value of your estate, avoid gift taxes and estate taxes on an asset’s future appreciation, or shift an income-producing asset to a family member in a lower tax bracket. The recipient of a qualifying lifetime gift owes no taxes and doesn't need to report the gift unless it comes from a foreign source.

A federal unified tax credit allows Beverly to transfer up to $5.43 million of assets during her lifetime without incurring gift taxes. The combined total for spouses is $10.68 million. However, using her unified credit during her lifetime will decrease the amount she can transfer estate-tax free to family members when she dies.

As a widow, Beverly could add to her own total the amount of exclusion that her deceased husband did not use. The executor handling the estate of the deceased spouse can transfer the unused exclusion to the surviving spouse. Using this option, Beverly must file an estate tax return within nine months of the death, even if no tax is owed.

Should she wish, Beverly can give up to $14,000 in cash or other assets to as many individuals as she wants each year, without incurring a taxable gift. This amount does not count against her unified tax credit.

She has several options for making gifts:

  • A direct transfer
  • A trust
  • A custodial account (suitable for a minor child).
  • A contribution to a 529 plan to pay for college education.
  • Beverly doesn’t fully understand how lifetime gifts may affect her estate. She hopes to be generous within IRS guidelines. When she meets with her advisors, she wants to ask some of these questions:
  • As a Section 16 insider with her company, along with finding out what SEC filing is required of her when gifting, what can be done and when?
  • Can a gift of vested performance shares be made during her lifetime?
  • Should Beverly sell her vested performance awards and give cash instead?
  • What vehicle (i.e., a trust, custodial account, or 529 plan) is best when making this lifetime gift?
  • Should she file a gift tax return to keep intact the unified credit on her estate?

Though generally confident about her finances, how will making lifetime gifts to Madison impact her overall financial position?

*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

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Executive Compensation, Non-Qualified Deferred Compensation, Performance Stock Units, Restricted Stock Units, Retirement Planning, Stock Options

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