Using Gifting Strategies for Single Individuals as Part of NJ Estate Planning
Whether widowed, divorced, or never married, a single person has fewer estate-tax planning options than someone who is married. Techniques involving the unlimited marital deduction typically serve as a cornerstone of federal and NJ transfer-tax planning for married persons. When the unlimited marital deduction is not available (i.e. a single unmarried person), a single individual whose estate is expected to exceed the Estate tax exemption amount in New Jersey must look to other tax-minimizing strategies.
Of the planning options available to an individual who no longer has (or never did have) the benefit of a spouse and the marital deduction a strategy of making lifetime gifts is perhaps among the most powerful.
Gifting, a simple estate planning strategy
In any gifting strategy use of the gift-tax exclusion of $14,000 per person (this benefit is annually indexed for inflation) per year is a must. To qualify for this exclusion, the interest transferred must be a present interest.
Making lifetime taxable gifts can also be a viable planning option in that such gifts irrevocably remove the assets and any subsequent appreciation from the donor’s estate. The applicable exclusion amount for lifetime gifts is currently $5,430,000 under the IRS tax code. This figure is indexed for inflation.
Lifetime charitable gifts also present planning options for a single individual. Such gifts can provide significant income-tax savings in addition to gift- and estate-tax benefits.
Within these broad parameters, there are a number of gifting strategies an estate planner might recommend. As with any planning, a client’s personal situation and planning goals will dictate the most appropriate strategies. Interested in learning more?
Paying for Education and Medical Care
For individuals who want to help fund higher education costs, making contributions to a tax-favored Sec. 529 plan may be an attractive option. Section 529 plans generally are exempt from federal income tax. Plan contributions are not deductible for federal income-tax purposes, but qualifying distributions are not includable in the gross income of either the contributor or the designated beneficiary. A Section 529 plan therefore offers the potential for tax-free investment growth.
The tax code also allows the equivalent of five years’ worth of annual exclusion gifts to be made in one year to a Section 529 plan. The gifts will be treated as having been made on a pro rata basis over five tax years, commencing with the year of contribution. For individuals who have college-age beneficiaries (especially students in expensive private universities), substantial gifts can be made at no gift-tax cost by making tuition payments directly to the university.
Given the high cost of medical care, it is not uncommon to learn that a client is assisting a loved one with medical expenses. In this situation, making payments that qualify for the medical expenses exclusion can be a very useful tax strategy.
If you have questions concerning the availability of educational or medical expense deductions under the NJ tax code, contact Fredrick P. Niemann, Esq. at firstname.lastname@example.org or call him toll-free at (855) 376-5291.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Estate Planning Attorney
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