Wealth Planning Commentary – November 18, 2024

The Best Ways to Gift this Holiday Season

As the holiday season approaches, many are considering year-end gifting to family members and friends. We recommend connecting with your wealth manager so to discuss gifting plans. This provides ample time to evaluate and select the most effective strategies to ensure all gifts are executed promptly. Some strategies require raising liquidity, security selection, and preparation of Crummey letters for gifting to children’s trusts and ILITs. The Annual Exclusion The annual gift tax exclusion allows gifts of up to $18,000 per recipient ($36,000 for married couples) without triggering gift taxes. There is no limit to the number of recipients who can benefit from this exclusion. While the annual exclusion is $18,000, exceeding it will not necessarily trigger a gift tax liability. Gifts above the annual exclusion amount will reduce your lifetime exemption of $13.61 million. To ensure that gifts count for the 2024 tax year, they must be made by December 31st. Paper checks must be cashed by this date; the transaction must be completed on or before December 31st for electronic transfers. Given the holidays and typical year-end congestion at the custodians, we recommend initiating gifts before December 20th. Direct Payments for Education or Medical Expenses Another effective strategy involves making direct payments for education or medical expenses. Payments made directly to medical or educational institutions on behalf of someone else are exempt from gift taxes. There is no cap on the amount of education and medical that can be gifted directly; such gifts do not count against the lifetime exemption. Remember that these payments must be made directly to the institution, not the individual recipient. 529 Plans Parents and grandparents may also want to contribute to family member’s future education expenses. 529 plans offer an opportunity to help a younger family member – whether a child, niece, nephew, grandchild, cousin, or even family friend – start with years of tax-free investment growth. Contributions to 529s are considered gifts to the beneficiary, and the annual exclusion and lifetime exemption rules apply. However, 529s do allow for 5 years of accelerated yearly exclusion gifts. For example, an individual can give $90,000 this year without dipping into the lifetime exclusion. The 5-year frontload depletes the annual exclusion gift amount allowed for the beneficiary for the next 5 years. Contributions to a 529 Plan may qualify for state income tax deductions and grow free of federal taxes. Withdrawals for qualified higher education expenses are also tax-free. Some states allow tax-free withdrawals for K-12 tuition expenses. Non-qualified withdrawals may incur a 10% penalty and taxes on the gains. Furthermore, a dynasty 529 plan can be established to provide educational support across generations. Roth IRAs For younger family members who have earned income, gifting funds to them for Roth contributions can be an excellent long-term investment strategy. The contribution limit for a Roth IRA is the lesser of the individual’s earned income, or $7,000. Funds in a Roth IRA grow tax-free, and withdrawals are tax-free after the age of 59.5, making it an ideal vehicle for long-term wealth building. Low-Basis Stock When considering gifting appreciated securities, one strategy is to gift low-basis stock to family members in lower tax brackets. This strategy allows the recipient to inherit the securities' cost basis and potentially sell them without incurring capital gains taxes or at least paying capital gains tax at lower rates. The family member making the gift also transfers low-basis holdings out of their portfolio and avoids paying capital gains, making it a tax-efficient means of transferring wealth. Experiences Finally, gifting experiences such as concert tickets, cooking classes, or weekend getaways can be a meaningful way to spend. While such gifts generally do not trigger gift taxes, it is important to note that paying for someone’s plane ticket may be considered a taxable gift. However, these expenses are typically not reported unless they exceed the annual exclusion. Please reach out to your Wealth Manager with questions about gifting. Disclosures Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only, has not been tailored to the needs of any specific client, and should not be construed as individual tax, legal or investment advice. Please consult with your individual tax advisor prior to making any tax-related decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Investing entails risks, including possible loss of principal. Past performance does not guarantee future results. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. 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