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US Year End Planning: Gifting Strategy

As you plan for year-end, lifetime gifting strategies may very well be part of your estate planning strategy. In the UK, you are able to give lifetime gifts, otherwise known as Potentially Exempt Transfers or PETs, and as long as you outlive the gift 7 years, then you will be exempt from UK estate tax. From a US perspective, anything more than the annual allowance of $14,000 to an individual will go against your lifetime allowance estate & gift tax allowance of $5.43 million (2015).

The US allows a concept called ‘gift splitting’ between two US spouses that are giving a gift to an individual. This will generally allow $28,000 to be given to one individual by both spouses before using each person’s lifetime allowance.

When you are looking to gift a larger sum of money and that gifting will occur towards the end of the year, it can often make sense to split the total gifts between two tax years so that part of the gift occurs in the 2015 tax year and part of the gift occurs in the 2016 tax year. This will allow you to utilise twice the amount of annual allowance and limit the amount that reduces your lifetime allowance.

An example may be a helpful illustration. Say you and your spouse want to help your child with a down payment for a new home and you are looking to gift $100,000. If you gave the gift in one tax year, you would likely be able to gift $28,000 between the two of you. The remaining $72,000 would be used against your lifetime allowance. However, if you split the gift and gave $72,000 in one year and $28,000 in the other year, then you would be able to transfer up to $56,000 as part of the annual allowance and you would reduce your lifetime allowance by just $44,000 as opposed to $72,000. Depending on the overall size of your estate, this can be a very useful way of maximising the use of your lifetime allowance over time.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.


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