The first thing that one always thinks about is the estate and gift tax exemption.
Erskine (2022) explains that, in 2023, there is an annual gift tax exemption of
$17,000 per person, as well as a lifetime exemption of $12.92 million per
person. This is the first clear way that Ann and Bob can transfer their wealth.
They can transfer a gift worth $34,000 to each heir this year, and that is use it
or lose it, so there is zero reason that they should not take advantage of it.
Furthermore, that is a far cry from the $1 million they are trying to get to their
children/grandchildren, however, they are going to get this kind of inflation-
adjusted exemption every year. They can take advantage of it, and if they live
for several more decades, they can offload a lot of that property tax-free.
Continuing, they have roughly $26 million worth of lifetime exemption that
they can use any time. If they want to give each child and grandchild a million
dollars, this is how they should do it. Once this lifetime exemption runs out, it
is gone. They should use it soon though, considering the exemption is set to go
down significantly come 2026. If this wasn’t the case, it may not be as pressing
to use up the exemption so quickly. However, because this is the case, it may
actually be smart to accelerate the transfer process faster and maybe start
dividing up that land. It is up to Ann and Bob, but they need to be aware that
through the use of trusts, they can transfer assets and still largely control the
assets. They have significant wealth, and the tax burden is going to be very
large. It is pressing that they are completely aware of the situation, and hear
our recommendation so they can better set their goals. All in all, they can give
everyone more than they wanted to with this option, and it is by far the best.
So where is that going to leave them? a Anderson et al. (2023) explains that the
gift tax and the estate tax are one in the same. With that in mind, after they use
it now, there won’t be a lot to stop tax consequences when they die. That
means we need to be proactive now to try and transfer more if the client wants
that, since they probably don’t want the ranch broken up in order to pay tax on
it. If the ranch is a business that earns money, the parents can loan adult
children money, and then the children can immediately purchase a chunk of
the farm. As their piece of the business earns money, they pay interest and
principle back to the parents, and over time they start to own more and more of
the land with minimal tax consequence. At this point, I’m just suggesting
things that go above and beyond what they were asking for. However, there is
no reason they shouldn’t consider accelerating things since there is such high
motivation to find tax breaks. They can always make sure they themselves
have plenty of money to do the things they want to do. Beyond that, they want
to give it to who they want to give it to in the most efficient way possible.
Erskine, M. (2022). Forbes. IRS Announces Estate and Gift Tax Exemption
Amounts For 2023. Retrieved from:
