June 8, 2022
While you are looking at your holiday shopping list, rather than buying a gift that may or may not be what your family member is looking for, you should consider this – the gift of cash! As an added bonus, giving money to family or friends can also be a smart tax planning move. Even better, if you are wealthier, gifting cash now can help you reduce or avoid estate taxes when you die. And don’t forget how happy the cash gift will make your friends and family.
In 2021, you can gift up to $15,000 per person during the year without have to file a gift tax return (this exemption amount increases to $16,000 in 2022). If you’re married, your spouse can also give $15,000 to the same people, jacking up the annual tax-free gift to $30,000 per person. Also important to know is that the gift recipient pays no tax on the money received, either. Remember that you can give these cash gifts year-after-year without paying any gift tax, unless the total of all your non-exempt gifts over the years exceeds the lifetime limit, which is $11.7 million for 2021 ($12.06 million for 2022). Since the limit of $15,000 (or $30,000) is an annual amount, you have to make your gifts (and it must be deposited in the case of a check) before the end of the year.
Even more good news: whatever you give away during your lifetime that is at or below the annual gift tax exemption is not counted for estate tax purposes when you die. So, in essence, you can spend your way out of the estate tax by reducing your estate below the exclusion amount, meaning no federal estate tax when you pass away. For further consideration is the fact that the exclusion amount, under current law, declines to $5 million in 2026, unless Congress acts to make a change before then. So, even if your estate is not worth more than the exclusion amount now, it might be after 2025. It is also important to point out that IRS regulations also guarantee that tax-free gifts you make before the end of 2025 won’t trigger estate taxes if/when the exclusion amount is lowered. Don’t forget that there could be state estate taxes to worry about, too — 12 states and the District of Columbia have their own estate tax, and all of them currently have exclusion amounts far below the current federal standard (as low as $1 million in Massachusetts and Oregon). Even if giving away money now doesn’t allow you to completely avoid estate taxes, you’ll still reduce the estate tax owed by reducing the value of your estate.
If your clients are looking for sources of cash to gift, your clients can look to sell an unwanted or unneeded life insurance policy in a life settlement. It may be more prudent planning for your clients to give their money away while they are still alive. Situations changes and your clients life insurance policy may no longer meet their current needs. All types of life insurance policies can be sold, including universal life, whole life, variable life, and term life. Here is more detail on what factors impact the value of a life insurance policy.
You can get an instant estimate of the value of your client’s life insurance policy by visiting the LCX Life calculator. You can also call LCX Life at 888-388-0988, contact us here, or email us email@example.com to discuss your client’s situation. Our team is available and ready to explain to you all that you would want to know about life settlements. Remember to visit our Life Settlement Genius portal for client materials and additional information.
Remember: Never let your clients abandon a life insurance policy without looking at the life settlement option first!