Decide who should receive personal items, and learn tax rules on gift-giving

There are many items that one may choose to gift to their family members or friends after they die, including property, money, items of sentimental value, and other expensive items such as jewelry.

Trying to distribute these assets after a passing without clear instructions can cause strife within families, as well as legal and financial hurdles such as probate.

Before deciding how to distribute assets, you or the person you’re planning for should talk to family and children about gift-giving plans. Acting early provides an opportunity to give away assets in a manner that is satisfactory to all family members.

Families can also talk amongst themselves about which gifts they would prefer to inherit. This way, there are multiple people able to voice their opinions, and also multiple witnesses to confirm the opinion of a person, should they insist they asked for something else later on.

If family members cannot agree on items, one way to solve this fairly would be to hold a draw or lottery to determine the order of selection. 

Once there’s been a discussion of which assets should be distributed and to whom, then comes the matter of how to distribute them. To make wishes legally binding, you or the person you’re planning for should consider including them in a will or living trust.

For personal belongings, you or the person you’re planning for should make sure to specify the most important belongings in a will, as well as the person to whom they should be distributed.

You or the person you’re planning for should consider also creating a living trust, in which a person can transfer ownership of assets and name beneficiaries who will inherit items after a death. Detailed wills and living trusts will help avoid probate. For more on trusts, click here.

If items such as vehicles need to be transferred, you or the person you’re planning for should do so before passing.

The last but equally important considerations are the tax ramifications of distributing assets. Certain gifts qualify for the annual exclusion from gift tax, known as annual exclusion gifts. These items do not require filing a gift tax return. An annual exclusion of $15,000 applies separately to each person to whom valuables are gifted.

With regards to a house, there are a number of ways to avoid taxes when giving away property:

• Add it to a will: As long as a property is worth less than $11.58 million as of 2020, no federal estate taxes need to be paid. However, tax exemptions may vary from state to state

• Gift it to children: If a residence is worth less than $11.58 million, it may be gifted to children over a lifetime without incurring tax. However, a person may not gift the property to their children in a single year. There is a law that states that gifting property to anyone other than a spouse over the course of a year will incur taxes if the property is valued at more than $30,000.

• Sell the house: Selling a house for less than fair market value will result in the difference being considered as a gift. 

• Put the house in a trust: Putting a house in an irrevocable trust with children as beneficiaries means that it will not be a part of an estate after a passing, and no taxes will need to be paid on the transfer. Furthermore, the house will not be subject to Medicaid estate recovery.

While this is general information on how to bequeath a property tax-free, we do suggest consulting a real estate attorney to finalize plans and answer questions. You can find an attorney through Peacefully using this link.