If you are starting the process of planning your estate, recently cashed out a retirement policy, or down-sized your family home, you may want to consider gifting some of your property now rather than waiting to do so through your will. Such considerations are usually undertaken for a very straightforward reason: federal tax law. Generally, federal tax law encourages people to transfer property through means other than their wills, often before they die. This can be accomplished through more formal means such as trusts, but also through less formal avenues such as gifts.
Gifts made while you are alive, called inter vivos gifts, are an especially good idea if you have a large estate. Such gifts can help reduce the size of your estate, thus lessening taxes and helping the estate avoid full-fledged probate and the associated costs and waiting time. However, it is important to note that such gifts, if over a certain dollar amount, can create an unexpected tax liability.
You can give a gift of any amount to your spouse without tax consequences. But if given to anyone other than your spouse, an inter vivos gift that exceeds a certain amount will be subject to gift taxes. As of 2016, federal law permits you to give tax-free up to $14, 000 per person, per year. You can make gifts to any number of people, and the recipients need not be related to you. If the gifts are made to a charity, you may also benefit from an income tax deduction.
Be sure to make clear if a gift to a beneficiary of your estate is intended to be an advancement of what you expect to leave them in your will or a separate inter vivos gift. For example, suppose that in the month before you die, you loan your son $12,000 to help cover his college tuition. If you then leave him $25,000 in your will without specifying that the $12,000 was an advancement against that amount, the probate court might give him the full $25,000 specified by the will. Your intention in making any loan, advancement or gift should always be put in writing. If you have any concerns, your lawyer can help ensure that all your intentions are properly documented and will meet any legal requirements.