Daniel Brockley

Feb 02, 2023

5 min read

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Top 7 gifting strategies for estate planning

In 2021, Americans gave a whopping $484.85 billion to charities, a 4% increase from 2020. And that doesn’t account for gifts to family and friends outside of official charity organizations. Simply put, gifting is a huge part of our economy.

Our guide provides a great refresher for advisors, and can also be given to clients to help educate them on their options when it comes to giving.

Why consider giving?

People choose to give for a variety of reasons, but there are two primary drivers that gifting has become such an important part of people’s lives (and their financial plans). The first is altruism. Humans are a cooperative species–it’s our super power–and many people give because they want to help others. There’s plenty of research to suggest that giving actually has positive effects on our mental and physical health.

In addition to this spirit of good will that sparks some to give, there are also income and estate tax benefits. Generally speaking, each dollar donated to a qualified charity in a year can reduce a taxpayer’s income for that year by the same amount, up to 30% of adjusted gross income for non-cash assets and 60% for cash. So for someone in the top federal tax bracket paying 37% income tax, a $10,000 donation saves $3,700 in taxes. Taxpayers get to reduce their income tax and support the causes they love.

Making lifetime gifts is also one of the most common, tried-and-true strategies to reduce estate tax liability. With estate tax ranging from 18-40% over the $13.61 million per taxpayer threshold in 2023 (which is set to be cut in half in 2026), there’s a lot of incentive to lower the tax burden.

There’s more than one kind of gift, however, and each type of gift has a different set of requirements. Some gifts and donations are income tax deductible, while others are not, and subject to gift tax.

We’ve put together a A Guide to Gifting that covers the most common forms of charitable and non-charitable gifting, and what you need to consider for each, including:

Direct Gifting

Giving directly to a qualified charitable organization enables the donor to receive an income tax deduction (as well as lowering their overall taxable estate).

Donor-advised Funds

Donor-advised funds are typically operated by 501(c)(3) organizations (called “sponsoring organizations”), and allow multiple parties to contribute to the fund or account.

Qualified Charitable Distributions

A qualified charitable distribution allows those who are 70 ½ or older to make charitable contributions of up to $100,000 from a traditional IRA.

Charitable Remainder Trusts

A Charitable remainder trust (CRT) allows the donor to draw an annual payment over the lifetime of the trust.

Federal Annual Gift Exclusion

Every year, each person can give $18,000 to a non-charitable donee without triggering the federal gift tax.

Lifetime Gifting Exemption

In addition to the annual gift exclusion, every individual is able to give a cumulative amount up to $13.61 million in 2024, free of the federal gift and estate tax.

Qualified Education and Medical Expenses

There is no limit to the amount an individual can contribute, tax-free to qualified education and medical expenses.

Our Guide to Gifting will walk you through the major types of charitable and non-charitable gifts that you might want to consider as you plan your tax and estate strategies.

About Vanilla

Vanilla is the Estate Advisory Platform, purpose-built to enable financial advisors to build deeper relationships with their clients and empower clients to build and protect their legacy. From robust and easy-to-understand visualizations of complex estates, detailed diagrams of how assets transfer to future generations, to ongoing estate monitoring, Vanilla is reinventing the estate planning experience, end-to-end. Learn more about Vanilla at https://www.justvanilla.com/.

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This article is for educational purposes only and should not be considered legal advice. If you feel that the information in this article is pertinent to your situation, you may wish to consult a qualified attorney for advice tailored to your circumstances.