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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Here is an engaging question for your next dinner party: If you knew with certainty the date of your death, would you die with nothing left?    In his book, “Die With Zero,” author Bill Perkins makes a case for maximizing personal life experiences, even at the cost of optimizing one’s financial net worth. Perkins argues that we should use our human and financial capital to optimize opportunities for desired life experiences, even if it means “zeroing out” our financial accounts.  Perkins is not the first to point out the qualitative superiority of lifetime transfers over post-death, or “testamentary,” gifts.

On a related note, I am pleased to share that I have self-published a book summarizing the distinctives of a Bible-based estate plan, which I have entitled, “Our Eternal Inheritance: A Guide to a Biblically-Integrated Estate Plan.” Among other estate planning topics covered in my book, I summarize the spiritual and relational benefits of lifetime gifts. In this month’s update, I summarize three personal benefits of lifetime gifts, and then briefly address legal and tax implications of lifetime gifts to family.

Personal Benefits of Lifetime Gifts

While every family situation presents unique personal benefits for making lifetime gifts, here are three of the most common benefits I observe from clients making lifetime gifts to family:

Create Mentorship Opportunities

Lifetime transfers create mentorship opportunities.  Financial stewardship abilities are learned through experience; none of us are born with wisdom.  Clients should provide their children the opportunity to make decisions under their tutelage at a time when they can help the children course-correct and before a more substantial financial inheritance is received following death.

Maximize Usefulness to Family

Lifetime transfers maximize the usefulness of the assets to children. One recent study showed that the median age of the receipt of an inheritance is now age 51, which is 10 years older than it was in 1989.  If your clients seek to maximize the usefulness of financial assets in the hands of their children, they should make transfers to them at a time when they can maximize the usefulness of those assets.  A gift of $30,000 is generally more useful to a 30- to 40-year-old child than a 65-year old adult child who would receive assets following a client’s death.

To Free Up Better Opportunities

Lifetime transfers free up business owners to move on to new and fulfilling endeavors.  Holding on to business assets or other unique assets for too long creates a two-pronged crowding out effect: (1) the senior generation does not have the time or capacity to engage in charitable or family commitments, and (2) the junior generation is left in limbo, waiting for the opportunity to take over the management of the business or cabin.  A transfer of a business or cabin interest to the junior generation frees up the senior generation for retirement objectives, and utilizes the perspectives and energy of the junior generation at the right time.

Legal Implications

Clients with multiple children must determine whether transfers to children should always be done equally, or whether gifts can be made disproportionately, perhaps based on the needs or merits of the child’s personal life situation.  This philosophical framework should be applied to both lifetime gifts as well as testamentary gifts. Since most of our clients support their children in some manner through lifetime transfers, clients should identify their own philosophy regarding lifetime gifts to children.  If your clients believe that disproportionate lifetime gifts must eventually be equalized, it is critical that they adequately document such gifts as part of their legal estate planning documents.  Specifically, their legal documents must specify that unequal lifetime gifts must be legally treated as “advancements” against a child’s inheritance.

Tax Implications

Clients too often abide by the legal advice of their bridge partners or pickleball buddies who tell them that they can only give up to $18,000 to children before paying taxes.   These clients often spill their coffee in surprise after I tell them that, under current law, a married couple can give $27 million without paying any taxes. Briefly, the tax rules for gifts to family members are as follows:

  • Income Tax Implications. Children or grandchildren pay no income taxes on the receipt of a lifetime gift.  Clients receive no income tax deduction for the gift. 
  • Annual Exclusion Amount Gifts. A single individual can give up to $18,000 per beneficiary per year as an annual exclusion amount If the value of annual gifts to any one individual is less than the annual exclusion amount, no gift tax return needs to be filed in the year(s) of the gifts.
  • Federal Unified Credit Amount. If the total value of gifts to a family member exceeds the annual exclusion amount, clients need to file a gift tax return.  On the gift tax return, a client would be deemed to utilize some of the client’s lifetime federal unified credit amount, but only to the extent the total gifts in a year exceed the annual exclusion amount. The federal unified credit is currently $13,610,000 per person in 2024.  If your client does not give more than the federal unified credit amount, the client won’t pay any gift taxes.

The ongoing vitality of our law firm is premised on our clients not knowing the date of their death.  Since we don’t know with certainty the date of our deaths, very few of us will be successful in “dying with zero.”  Nonetheless, I place myself firmly in the category of those who believe we should seek to diminish, rather than increase, our financial net worth as we near the end of our life expectancy.