27 Feb Should I gift my assets to avoid gift and estate taxes?

Q. I learned that if you give a “gift” that below the taxable amount there will be no tax. If this is correct, can I give “all” of my assets such as our house, my IRA, all my CDs and my checking account to my son as a gift so he will avoid all taxes. This will be after I pass away. Your advice is appreciated.
— Planning

A. It sounds like you are referring to the federal gift tax.

Here’s the way it works.

You can gift $15,000 per person per year free of gift tax, said Yale Hauptman, an estate planning attorney with Hauptman and Hauptman in Livingston.

If you gift more than that to any one person you must file a gift tax return, Form 709, he said.

“In that case you have two options: Either pay the tax on the excess over $15,000 — current rate is 40% — or use some of your lifetime exclusion which is now up to $11.58 million,” Hauptman said. “This the amount in addition to the annual exclusion that you can transfer during your life or at death free of gift or estate tax.”

If you are married, that’s $23.16 million you and your spouse can transfer free of tax.

New Jersey no longer has an estate tax.

Hauptman said at the current exemption amount, very few Americans have to worry about the estate or gift tax.

Your idea to give everything to your son is extreme and has other risks you may not be aware of.

First, legally, he would own everything. You would then be financially dependent on him for everything that your income doesn’t cover, he said.

“You might have an understanding that he will take care of you, but if he changes his mind there’s not much you can do about it,” he said. “If he dies, divorces, or goes bankrupt the money could also be lost.”

There are other potential negative income and capital gains tax implications in making the transfer, Hauptman said.

There are better ways to limit the tax without that kind of risk through the use of trusts, Hauptman said, but make sure first that you really do have a tax problem. Then if you want to gift your son money, use the annual exclusion. If you and your son are both married, you could gift up to $60,000 each year from you and your spouse to your son and his spouse, he said.

“My advice is to speak with an estate planning attorney or if you are near or of retirement age an elder law attorney who can give you the pros and cons in your particular situation,” he said.

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This story was originally published on Feb. 27, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.