Putting thought into your annual gifts

| September 22, 2023

As we head into the home stretch of 2023, you should start thinking about some of the year-end financial decisions that can impact your taxes and estate. One of the common tasks I see clients working on from now until year-end is determining whether to give any monetary gifts as part of the annual gift tax exclusion.

In 2023 the amount of money you can give to a recipient without tax implications is $17,000. So if you have four children, you can gift each one $17,000. And if you’re married, your spouse effectively can also gift each one $17,000. Some gifts are exempt from gift tax, such as donations to a qualified charity, payments for medical reasons to a health care provider on behalf of someone else, and tuition payments to a school on behalf of a student.

You might have any number of reasons for gifting. But some people do it as part of a strategy to reduce the size of their taxable estate without affecting their federal gift and estate tax exemption, which in 2023 is about $12.9 million per individual. (This amount might decrease significantly in 2026, but that’s another subject for another day.) Estate taxes beyond that level can be hefty, though we work with clients on estate planning tactics to minimize those taxes.

One thing that’s harder for us to do is make sure your beneficiary receives the gift in the spirit you intended. All families have different dynamics and histories. You might have Facebook envy for that family that’s always posting about their fabulous vacations and athletic triumphs, but there’s a decent chance even they have their issues.

I’ve seen families get into years- and decades-long disputes about matters that you and I might find trivial. One person I know was accused of stealing photographs from her grandmother’s home. This resentment caused a serious rift in the family that lasted many years until she found a letter from her grandmother expressing her wishes for her granddaughter to have them.

Issues regarding money can be even more sensitive within a family. So to make sure that these issues don’t come to the forefront when you’re starting an annual gift program, make sure there are open lines of communication with the recipient.

Explain why you’re giving them the money and any aspirations you have for the gift. I hope the recipient is grateful enough to say thank you, but this isn’t a given. The recipient might feel there are strings attached to the gift they don’t want to acknowledge, or they might believe you don’t expect a thank you. It happens.

Any potential for misunderstanding can be mitigated with consistent, clear communication in an atmosphere of mutual respect. What you don’t want is for your good intentions to go sour because of a lack of communication.

There’s no reason you can’t get started on this earlier in the year. In fact, if your financial team is going to be involved, it’s much easier to make sure everything is done before year-end if you aren’t rushing in late December as your advisors celebrating their holiday season.

Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com.   Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC.  Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through  an Avantax affiliated insurance agency.  6260 Lake Osprey Dr. Lakewood Ranch, FL 34240.  The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth Management® or its subsidiaries.  Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.  An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency.  Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.  CDs are FDIC insured and offer a fixed rate of return.  They do not necessarily protect against a rising cost of living.  The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value.  Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.