There are many ways to gift your property to your heirs. We will explore a few of them today. Some options change if you exceed the Federal limits on gifts.
If you have over Five Million Dollars:
If you own more than the Federal Estate Tax limit, you can end up paying a significant portion of your estate to Uncle Sam. Currently, you can gift close to 13 million dollars without paying a Federal Estate Tax. Couples can gift twice that amount. If your gifts exceed the federal limit, you can pay up to 40% of the excess in taxes.
This 13 million dollar limit is estimated to shrink to between 5 and 7 million dollars in 2026, unless congress signs a new law to replace the current expiring law. Even then, most people don’t have to worry about passing on over 5 million dollars per spouse. Couples will still be able to pass on up to 10 million together, though the surviving spouse needs to file special tax forms when the first spouse dies. These forms are called a “portability election”.
If you have an estate worth over Five Million, and you wish to avoid taxes where legally possible, please discuss your situation with an attorney right away. There are many ways you can reduce what you pay to heirs through your personal estate at your death. Some can gift just less than the maximum allowed amount to each heir on an annual basis without being required to report the gift. Others may purchase life insurance, which will pass outside of your estate to whoever is named the beneficiary of the policy. Others may make adult children employees of a company, and pay them a wage. And still others will gift stock to children in a slow year for the company when stock value has dropped. Plenty of legal options exist, but some are dependent on taking action long before your death. Each action depends on several factors to be effective, so discussing your situation with an attorney is critical to avoid unintended consequences.
Here are some options that anyone can take, whether a Millionaire or not:
Gifts of Real Estate through Joint Interest
Gifts through Joint Interest are popular, but must be done with care. If you want your spouse to own an asset at your death, it is usually safe to have them as a joint owner of your property. This is most commonly done with real estate.
In the past, to add your spouse as a joint owner, you could record a Quit Claim Deed giving the property from yourself to you and your spouse as “joint tenants” or as “husband and wife”. Either of these was sufficient under Utah state law to make you both joint owners. Today, this it is no longer necessary for deeds created on or after May 1, 2024. Now all deeds automatically assume that the parties are joint tenants, unless you designate otherwise.
Joint tenancies will make the survivor the sole owner of the property. The survivor will not need to go to Probate court to complete their ownership. Instead, they only need to record an Affidavit of Death, that includes a copy of your death certificate, with the county to prove the survivor is now the sole owner.
Preparing and recording deeds may seem simple enough, as there are plenty of examples of deeds on county records that you can copy to create your own. I recommend against this for many reasons, including significant capital gains taxes. Let’s chat for 5 minutes and save your heirs thousands of dollars.
When creating deeds please do not rely on the names shown on the property tax notice to determine ownership of your property. Sometimes the contact person for payment of annual taxes may be printed on the tax notice in place of the actual owner. If you aren’t sure what the ownership status is of your property, give us a call! I will look up this information for free in counties where the information is displayed publicly.
Gifts in Person
You obviously can gift an item to someone at any time as it is your property to give away as you please. One thing to consider when doing this is to leave a record signed by you naming the gift and the recipient. This will serve as evidence after your death in case someone tries to argue that it was not a gift, but only a temporary lending of the item to the recipient.
Gift by Naming a Beneficiary
Life Insurance, Bank accounts and Retirement Accounts all allow you to name a gift as a beneficiary. Many people will name a spouse as the sole beneficiary. This works as long as the spouse survives you. In the event that the spouse passes on before you do, we will find ourselves with an asset in your name and no beneficiary. In that case, probate is often necessary to collect the funds on behalf of your estate. A better option is to name a spouse as a primary beneficiary and others as secondary beneficiaries.
Gifts by Trust
If you have minor children that you want to inherit, you can create a Trust and name the Trust as beneficiary of the asset you want to eventually go to a minor child. This allows the successor Trustee to manage the funds after your death and pay for your minor child’s expenses until they are old enough to receive their full inheritance. You are free to choose any age for inheritance under a Trust. I have seen clients name beneficiaries as old as age 55!
Gifts by Trust can be a smooth transfer of assets by the successor Trustee. Once in a while, gifts named in a Trust have been sold or lost to creditors prior to being distributed. In that case, the specified gift might be the only inheritance of your heir. With the gift no longer a part of the Trust, some heirs have been left with nothing. To avoid this, many clients will give their heirs equal shares of the entire estate, or name a specific percentage to each, separate from making the gift. Then the gift can be described as a deduction from the percentage inherited, or specified as a separate gift in addition to the percentage inherited.
Gift of Vehicles by Joint Ownership
Many people will name the planned heir as a joint owner on a vehicle. At death, the joint owner automatically has claim on the entire vehicle. This is normally the preferred method for a spouse. Naming anyone other than a spouse has some risks. In the event that a co-owner has any liability due to an accident or a debt, creditors that win a Judgement can demand the sale of assets in the person’s name. Your vehicle may get caught in the lawsuit simply because you named that person as a co-owner of your vehicle.
However you choose to make gifts, please consider discussing your plans with an estate planning attorney. We can help you avoid many unexpected pitfalls and set up your estate to pass on properly as planned. Give Prigmore Law a call today to set up your free consultation!
This article discussed general principles of law. Please do not take action based on this article alone. Only an attorney can discuss your specific situation with you and then help you determine your best course of action.