Using Gifting Strategies
for Single Individuals
as Part of NJ Estate Planning
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Estate Planning Attorney
Whether widowed, divorced, or never married, a single person has fewer estate-tax planning options than someone who is married. Techniques involving the unlimited marital deduction typically serve as a cornerstone of federal and NJ transfer-tax planning for married persons. When the unlimited marital deduction is not available (i.e. a single unmarried person), a single individual whose estate is expected to exceed the Estate tax exemption amount in New Jersey must look to other tax-minimizing strategies.
Of the planning options available to an individual who no longer has (or never did have) the benefit of a spouse and the marital deduction a strategy of making lifetime gifts is perhaps among the most powerful.
Gifting, a simple estate planning strategy
In any gifting strategy use of the gift-tax exclusion of $14,000 per person (this benefit is annually indexed for inflation) per year is a must. To qualify for this exclusion, the interest transferred must be a present interest.
Making lifetime taxable gifts can also be a viable planning option in that such gifts irrevocably remove the assets and any subsequent appreciation from the donor’s estate. The applicable exclusion amount for lifetime gifts is currently $5,430,000 under the IRS tax code. This figure is indexed for inflation.
Lifetime charitable gifts also present planning options for a single individual. Such gifts can provide significant income-tax savings in addition to gift- and estate-tax benefits.
Within these broad parameters, there are a number of gifting strategies an estate planner might recommend. As with any planning, a client’s personal situation and planning goals will dictate the most appropriate strategies. Interested in learning more? If so, contact Fredrick P. Niemann, Esq. at email@example.com or call him toll-free at (855) 376-5291 and come in for a discussion.
Paying for Education and Medical Care
For individuals who want to help fund higher education costs, making contributions to a tax-favored Sec. 529 plan may be an attractive option. Section 529 plans generally are exempt from federal income tax. Plan contributions are not deductible for federal income-tax purposes, but qualifying distributions are not includable in the gross income of either the contributor or the designated beneficiary. A Section 529 plan therefore offers the potential for tax-free investment growth.
The tax code also allows the equivalent of five years’ worth of annual exclusion gifts to be made in one year to a Section 529 plan. The gifts will be treated as having been made on a pro rata basis over five tax years, commencing with the year of contribution. For individuals who have college-age beneficiaries (especially students in expensive private universities), substantial gifts can be made at no gift-tax cost by making tuition payments directly to the university.
Given the high cost of medical care, it is not uncommon to learn that a client is assisting a loved one with medical expenses. In this situation, making payments that qualify for the medical expenses exclusion can be a very useful tax strategy.
If you have questions concerning the availability of educational or medical expense deductions under the NJ tax code, contact Fredrick P. Niemann, Esq. at firstname.lastname@example.org or call him toll-free at (855) 376-5291.
NJ Probate Lawfirm | Gifting Strategies
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