What is the 'Gifting Phase'

The gifting phase is the stage at which an individual seeks to give away assets in accordance with their estate planning goals.

BREAKING DOWN 'Gifting Phase'

The gifting phase marks the point at which an investor ceases to concentrate on wealth accumulation or maintenance and instead turns toward efficient disposition of assets to heirs, charities or other recipients. At a certain point, some investors find that they have either accumulated so much wealth or grown so old that it seems unlikely they will have the time or inclination to spend it all themselves. Gifting represents the last phase in a successful investor’s timeline, after accumulating wealth during a career and then drawing down retirement funds. At that point, many investors get more reward out of giving assets away to family members or to worthy philanthropic causes than any other use they can find for their wealth.

Estate planning plays a role in the gifting phase, particularly where an investor’s wealth could create negative tax consequences for potential inheritors of an estate. Common avenues for giving away assets include charitable donations and trusts in addition to outright gifts to family members or friends.

Estate Planning and Tax Concerns

Investors in the gifting phase must remain aware of the potential ramifications of the gift tax and the estate tax as they set an estate planning strategy. The gift tax limits the amount of money a taxpayer may receive from another individual in a given year. For example, in 2018 an individual could receive a gift of up to $15,000 from another individual before suffering tax consequences. The IRS excludes certain types of gifts from tax, including those given to a spouse, certain gifts given to political organizations and payments made for another individual’s medical or educational expenses.

Large estates can wind up subject to high estate taxes. Individuals wishing to save the beneficiaries of their estate from such taxes typically plan some combination of asset transfers to bring their estate’s value below the estate tax threshold, a process which could take multiple years if the investor also wants to avoid gift tax consequences.

Gifts in trust offer another avenue for investors to transfer assets to heirs without triggering gift or estate taxes.

Philanthropic Causes

Many prominent investors have also turned toward philanthropy in their later years as a way to give back to society via worthy causes. Warren Buffett, along with Bill and Melinda Gates, established the Giving Pledge in 2010 in an attempt to get billionaires to commit to giving away at least half of their wealth to charitable causes. As of May 2018, 183 billionaires representing 22 countries had signed the pledge publicly.

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