For those who are fortunate to enjoy their retirement and have enough money to leave behind, they might be wondering whether it is best to leave an inheritance or gift their assets? Although the percentage of taxes owed on gifts and inheritance is the same, one is inclusive and one is exclusive, and the dollar difference between the two is huge.
One important aspect to the decision is the potential tax consequences.
This is why some people struggle over whether they should give money now to family members so they can see the benefits of that money or whether it is a better idea to leave those family members an inheritance. They know there are different tax rules depending on giving now or later, but what are those rules?
In neither case will the recipient have to pay taxes on the money. Nevertheless, as the Wills, Trusts & Estates Prof Blog explained, in a recent article titled "To Gift or Bequeath? That is the Question," the recipient might receive more money if you give it to them now.
As the article explains, if you are in the 40% tax bracket and give someone $1 million today, you will be required to pay $400,000 in taxes on the gift. However, if you have precisely $1.4 million and leave it all to someone in an inheritance, then the entire amount would be taxed at 40%.
That would make the actual amount inherited $850,000, not the $1 million that could be gifted with the exact same amount of money.
Of course, it is not quite as simple as that and you should speak with an estate planning attorney before reaching a decision whether to gift now or leave an inheritance.
For answers to more of your estate planning questions, attend one of Heritage's free workshops.
Reference: Wills, Trusts & Estates Prof Blog (May 4, 2015) "To Gift or Bequeath? That is the Question"