Insight

To Gift or Not to Gift? Tis the Question for the Season!

To Gift or Not to Gift? Tis the Question for the Season!

Anthony J. Enea

Anthony J. Enea

December 8, 2020 10:26 AM

By: Anthony J. Enea, Esq.

With the holidays fast approaching, many parents and grandparents will be deciding whether to make significant monetary and/or property gifts to their children, grandchildren and other loved ones. Some issues often raised in connection with the decision to gift are whether doing so will result in any taxes being paid by the person making the gift (the “donor”) and/or the person receiving it (the “donee”). Another issue that needs to be considered is whether the gift should be made outright or to a trust for the benefit of the donee.

This year the decision is a bit more complicated by the Presidential election and the issue of whether a new President and Congress will reduce the existing federal estate and gift tax exemption. As to the first question regarding taxation of the gifts, a donor can gift up to $15,000 per donee per year for the year 2020 free of any gift taxes. The donee/recipient of the gift is not taxed on the amount of the gift even if it is greater than $15,000. However, if the donor makes any gifts in excess of $15,000 per donee in any calendar year, he or she is required to file a gift tax return by April 15th of the following year.

The filing of a federal gift tax return does not mean that the donor will have to pay any gift taxes as he or she will be able to apply his or her federal exemption for federal estate and gift taxes to the amount of any gift above the $15,000 per donee in any calendar year. For example, a single (non-married) donor makes a gift of $100,000 in the year 2020 to his son or daughter, $15,000 of the gift is tax free and $85,000 would be subtracted from the donor’s federal exemption amount of $11.58 million dollars for Federal estate and gift taxes (available through 12/31/2025). If the donor is married, their spouse can join in on the gift and then reduce the taxable amount of the gift to $70,000, and only $35,000 would be subtracted from the life time credit of each donor. It should be noted that New York does not have a gift tax.

The existence of an $11.58 million-dollar Federal estate and gift tax exemption which expires on 12/31/2025 unless made permanent by law, creates a great opportunity for individuals to remove highly appreciating assets from their taxable estate. It is also a way of reducing the assets one owns which may be subjected to one’s long term care costs and future estate taxes. Because the above stated exemption expires/sunsets as above stated and because there is pending legislation to reduce the exemption to 3.5 million dollars per person, many affluent individuals are using the current exemption to make significant gifts. They are also taking advantage of the Internal Revenue Service stating that they will not claw back into one’s taxable estate any gifts made before the exemption changes, if it is later reduced.

The other issue that needs to be addressed by the donor is whether he or she wants the gift to the donee to be an outright gift that is free of any trust. This is a decision that often requires consideration of a number of factors such as the age of the donee (child or adult), the ability of the donee to appropriately manage his or her financial affairs and whether or not the donee is a spendthrift.

The use of a trust agreement is a prudent way of gifting and managing assets for a loved one. The trustee of the trust can be given the discretion to use the assets and income of the trust to or for the benefit of the trust beneficiary as delineated in the Trust. The trust can also specify the age or the condition that is a prerequisite for the trust beneficiary receiving the assets from the trust outright and the trust can also have more than one beneficiary.

The assets transferred to a trust will also be protected against any claims the beneficiary(ies) creditors have against them until the time the trust makes a distribution to them. Additionally, one can give the trustee(s) the authority to continue the trust beyond the set termination date if doing so is in the best interest of the beneficiary. The assets in the trust will also not be subject to equitable distribution claims in New York in the event the beneficiary gets divorced. Furthermore, if the beneficiary develops any disabilities during the term of the trust and the beneficiary needs any federal and/or state aid, a properly drafted trust will allow the beneficiary(ies) share to be continued as a Special Needs Trust for the beneficiary, which will not impact his or her eligibility for any Federal and/or State programs.

In conclusion, unless one is making a relatively small gift to a donee and there are no concerns as to the donee squandering or wasting said monies, an outright gift may not be appropriate. In most other instances the use of a trust to hold the gift is a much wiser option. Even the three wise men would have approved of it!

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Presenting the 2025 Best Lawyers Editions in Chile, Colombia, Peru and Puerto Rico


by Jennifer Verta

Celebrating top legal professionals in South America and the Caribbean.

Flags of Puerto Rico, Chile, Colombia, and Peru, representing countries featured in the Best Lawyers

Unveiling the 2025 Best Lawyers Editions in Brazil, Mexico, Portugal and South Africa


by Jennifer Verta

Best Lawyers celebrates the finest in law, reaffirming its commitment to the global legal community.

Flags of Brazil, Mexico, Portugal and South Africa, representing Best Lawyers countries

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot


by Gregory Sirico

Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.

Graduation cap in air surrounded by pencils and money

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

The Human Cost


by Justin Smulison

2 new EU laws aim to reshape global business by enforcing ethical supply chains, focusing on human rights and sustainability

Worker wearing hat stands in field carrying equipemtn

Introduction to Demand Generation for Law Firms


by Jennifer Verta

Learn the essentials of demand gen for law firms and how these strategies can drive client acquisition, retention, and long-term success.

Illustration of a hand holding a magnet, attracting icons representing individuals towards a central