As you consider your estate plan, it is important to think about the disposition of your assets and the tax implications at your death. Statistically, women live longer than men so you may be making decisions about not only your assets, but those you inherit. It is essential to understand different strategy options, gifting being one of them. Gifting can be a good planning opportunity for you now, and after your passing; however, the key is to have a solid plan in place.

Transfer Taxes

Property transferred during your lifetime or at your death may be subject to federal gift tax, federal estate tax or federal generation skipping transfer (GST) tax. These transfers could also be subject to state transfer taxes.

What is the federal gift tax?

Gifts do not typically result in actual taxes being paid. When a gift is made, it needs to be evaluated for federal—and possibly state—tax implications. The tax referred to is actually the potential use of your lifetime combined gift and estate tax exemption. Not all gifts reduce your lifetime exemption. You can make annual exclusion gifts tax-free of up to $18,000 per year per recipient in 2024. You can also make tax deductible gifts to qualified charities and unlimited transfers to your spouse. Additionally, tax-free gifts for qualified medical or educational expenses can be paid directly to a medical or education institution on behalf of someone else.

Usually, if you give property during your lifetime, your basis in the property (what you paid for it) will be carried over to the person who receives the gift.

What is the federal generation skipping transfer (GST) tax?

The federal GST tax usually applies if you transfer property to a person two or more generations younger than you—a grandchild, for example. The GST tax can apply in addition to other taxes.

What is the federal estate tax?

Property you own at death is considered part of your taxable estate and may be subject to federal and/or state estate tax. Currently, estates above $13.61 million will be taxed by the federal government, if you have not used any of your lifetime exemption. The federal estate tax is graduated, like the income tax. The highest bracket is currently 40%.

If certain provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) are not renewed, they will expire at the end of 2025. If this happens, the federal estate tax exemption threshold will be drastically lower. Without action, the exemption will drop to $5 million as adjusted by inflation versus the $13.61 million it is now. This could mean an exemption of roughly $7 million versus the current $13.61 million, with a maximum tax rate of 45% versus the current 40%. This could impact the amount of taxes owed by your estate at your death.

The combined gift and estate tax exemption, the generation skipping tax and the annual gift tax exclusion amount are all indexed for inflation.

Lifetime Giving

Making gifts during your lifetime is a common estate planning strategy and can help minimize future potential transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion noted above, as well as qualified medical and educational gifts. Current gifting may help reduce your current income tax and allow you to see your gifts being enjoyed. Gifting can also help reduce the size of your taxable estate.

Trusts

There are different kinds of trusts used in estate planning, some of which involve making a gift now, and some of which you can plan now and will be made from your estate after you die:

• Revocable trust
• Marital trusts
• Charitable remainder trust (CRT)
• Charitable lead annuity trust (CLAT)
• Spousal Lifetime Access Trust (SLAT)

Each type of trust has its benefits and potential drawbacks. Thinking about the future and the potential of facing a substantially different financial landscape can be overwhelming. Making these decisions to gift now, later or both, depend on your goals and priorities. It is important to work with an estate planning attorney to see what is best for you.

In the end, estate planning is highly personalized based on your family and your situation, and can involve many different strategies. Gifting is a strategy that has quite a few benefits and can be a valuable tool in your estate planning process. Ultimately, you need to think about what legacy you want to leave behind and the implications that could have on loved ones in the future.

To learn more about the comprehensive services offered by Busey Wealth Management or find an advisor near you, visit busey.com/wealth-management.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

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