Taxation and Survivorship

Gifts Before and After Death

As a means of looking to bequeath more of the value of one’s estate after passing, it may be well worth looking at providing part of this sum as gifts to your descendants. Depending on the tax jurisdiction involved, this can represent a real tax advantage and saving.

A lot of this does vary by jurisdiction though, and those with significant sums of money are well advised to get professional tax and estate planning advice prior to coming up with a plan here and especially putting it into action.

All things being equal, we should want to maintain control of our assets and not relinquish this by way of gifts unless this is either our clear preference, or if it becomes our clear preference after tax considerations are taken into account.

Tax considerations do play a prominent role in estate planning though, and it is the role of the estate planner to seek a balance between your own needs and preferences while you are alive with your estate planning needs, but a lot of this will depend on your own preferences, so it is important to play an active role in the planning of your estate to ensure that these preferences of yours will be taken into account properly.

If you know that you will be giving a certain amount away anyway, which may be the case with larger sized estates, where you have a lot more money than you may ever expect to spend, then looking to maximize your tax situation by giving some of it away while you’re alive may indeed be worth looking at.

Depending on the circumstances, this may involve either just making a gift, or it may involve setting up trusts if you wish or need to have the distributions managed according to a predetermined schedule. This is necessary when bequeathing to minors, and may also be of use if the recipients may not manage the gift as well as you may hope, where it instead may be distributed over time more, preventing the money from being spent too quickly if the recipient is so disposed.

Limitations and Scope of Gifts

As a rule, amounts bequeathed to one’s spouse or to a charity is exempt from estate tax. Given that marriage involves joint property, one need not worry about assets being transferred to a spouse, and charities receive preferential tax treatment generally, which includes estate tax.

Amounts left to children and others do not tend to be exempt though, and over a certain threshold, governments will take a cut of the net proceeds of one’s estate. This is where gifts can come into play.

Those with small estates, for instance of just a few thousand dollars, need not worry too much about paying estate tax, as they will either be exempt due to the smallness of the estate or may only face a small amount of tax.

Taxation and SurvivorshipStill though, even with very modest sized estates, one should be aware of what the threshold of not having to pay estate tax is, the amounts of estate tax that may apply if they are over this, and the options available to manage it.

It is not so much the size of one’s estate as it is the amount over and above what will be exempt from estate taxation that we need to concern ourselves with here. If, for instance, you plan on leaving $100,000 to your spouse and $100,000 to your children, it’s the amount that you plan on giving your children that you need to be concerned about optimizing tax strategies with.

If you are looking to give away all or part of this portion, you need not even worry about doing this while you are alive, provided that your spouse is still alive, as the remaining survivor among the two of you can perform this function later if desired.

Unless you both pass at the same time, which is possible but unlikely, the surviving spouse can later gift the amount of wealth desired to their relatives. We can take advantage of both options as well, where money is gifted both within our lifetimes and through our spouse after we pass on, which may be particularly helpful if we have an amount of wealth that requires several years to be gifted tax free.

How much we can give away may be subject to limitations, for instance in the United States you can only give away $15,000 a year tax free. The annual amount applies per person though, so those who have many people that they wish to give to can give away quite a bit of money per year, with those who have fewer that they want to bequeath to being more limited.

This also may apply jointly, so a couple could each give away $15,000 a year to a child, bringing the total to $30,00 per year, per child. There may be lifetime maximums that apply to all of this though, and some gifting may apply to the lifetime maximum and some may not, which is one of the reasons why getting professional advice here may be a good idea.

Other Ways to Avoid Estate Tax

One of the most popular ways to avoid estate tax liability, other than with gifting, is by using life insurance products to transfer wealth. This can be a particularly good idea among those who wish to both manage control of their estate and also look to minimize estate tax so that their loved ones may benefit more and the government will benefit less.

Life insurance policies are of course very well targeted to the situation as they will pay out to the beneficiaries you name upon your passing, which is exactly the time that you seek this to happen. Life insurance payments are generally non taxable benefits, which avoids the dreaded estate tax that would apply if the wealth were bequeathed straight up.

If there is some question of your needing some of this money instead, one can set up a life insurance product that can be tailored to your needs, either being partly cashable by you during your lifetime if you require it, or setting up annuities that can be passed on upon your death. Annuities can only be passed on to a spouse though, and when both parties die it can only be paid out in a lump sum, but the payment is also an insurance benefit and is generally not taxable.

Therefore, annuities can be a great way to help manage your affairs when you both are alive, help manage your spouse’s affairs when you pass, and also help your dependents mange theirs when you both pass, while also having tax benefits and reducing the amount of estate tax that will be owing from all of this.

There may be other ways that you can transfer wealth to your descendants, for instance in some areas helping paying for your children’s or grandchildren’s education may be exempt from taxation, which may allow you to gift over and above the normal limits. Given that these limits are already fairly substantial for most people, all but the very wealthy, there may already be plenty of room to give away your extra assets without needing to worry about substantial amounts of estate tax.

Managing the Amount of Wealth You Will Pass On

There will generally always be certain amounts that may be subject to tax though, as one cannot simply give everything away every year and just be left with amounts one needs to cover their expenses.

It is wise in fact to retain a good amount of wealth for yourself, especially since people tend to live longer these days and you do want to be well prepared if you end up living longer than you may expect.

This is a big reason why insurance products are often better suited as a means of transferring wealth, since they can both help manage your own wealth while you are alive and manage the transfer of it with greater tax efficiency upon your death.

As people’s lives wind down though, those of significant wealth can see themselves with a surplus well beyond what they may expect to be able to enjoy, and leaving substantial amounts to your loved ones upon your passing is a goal in itself that people pursue.

Just like planning on having enough to tide you over during your lifetime, planning on keeping enough wealth to manage this is not a simple matter, as this does involve looking to predict the future to some degree.

It is always wise to err on the side of caution when it comes to projecting your needs in the latter years of your life, and if anything, it is even more important to do so when it comes to retaining wealth during your lifetime versus giving it away. We do not want to give so much away that this becomes regrettable, either by way of poor management or unforeseen events such as high medical bills later on down the road.

This is particularly a concern with those who live in areas such as the United States that do not have government provided health care, where even with insurance, out of pocket costs can be very substantial in some cases, even amounting to millions of dollars. People also need to plan for the need for long term care, and many elderly people end up needing this, and this can also be a big drain on one’s financial resources over time.

As nice as it is to know that more of our wealth will be passed on to our families and less to the government by way of estate taxes, we don’t want to leave ourselves exposed to financial difficulties in pursuing this, so it pays to be conservative here when it comes to giving away our money now rather than later.

This is the biggest reason why we need to temper our desire to gift and to elude estate taxes with the ability to control our wealth directly while we are alive, and make sure that if we do choose to go the gifting route to some extent, that we are not selling ourselves short and will have enough left to cover whatever may come our way in our final years.

This is often not a simple matter at all, and may be beyond our own means to put together such a plan, but there are professionals in estate planning who can help us with all of this to the extent that we need it and provide good advice. It’s always us that ultimately decides such things though and we need to make sure that both ourselves and our descendants are well taken care of within whatever plans we come up with.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

Contact Monica: [email protected]

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