You probably give to others each year, such as for birthday and Christmas gifts. Gifting can be done for other reasons during life or as bequests at death. The reasons for doing so could be to accomplish nontax or tax goals.

Marc A. Hebert's Money Sense column sig

Here are some nontax advantages of making lifetime gifts. The first is that you are able to see the recipient (donee) enjoy your gift. You might feel satisfaction in helping your children achieve financial independence or have fewer worries. Sometimes, giving away property means you are the one with fewer worries. Property management can be a stressful responsibility.

Lifetime giving means you decide who receives your property. If you die without a will, the intestacy laws in your state will decide who gets what. By having a will, you can determine how you want your property distributed after your death. Even in this case, you won’t really know how the property is distributed. A beneficiary could disclaim an inheritance, for example. Lifetime giving allows you to react to changing circumstances and provides control over how your assets are distributed.

At your death, your property might go through probate. Lifetime giving will help reduce probate and administration costs because lifetime gifts are usually not included in your probate estate at death. If assets come out of the probate estate, it reduces the vulnerability to estate creditors or unhappy heirs. The probate process and your will is available for public view. Lifetime gifts are private.

Now that we have reviewed a few of the nontax advantages of lifetime gifting, let’s look at the tax advantages.

A properly structured gifting program can save income and estate taxes. Generally a gift is not taxable income to the donee. However, any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor is responsible for paying state and/or federal transfer taxes imposed on the gift. There may be four taxes to consider here: the state gift tax, the state generation-skipping transfer tax, federal gift and estate taxes, and the federal generation-skipping transfer (GST) tax.

One of the most prevalent reasons for lifetime giving is to remove appreciating assets from your estate. An asset is considered an appreciating asset if it is expected to increase in value over time. By giving the asset away, any future appreciation in value is removed from your estate. The taxes today may total significantly less than what they would be down the road once the asset’s value has increased.

It should be noted here that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, the asset will usually receive a step-up in value to a new basis, which is usually the fair market value at the date of your death. This means if the donee sells the asset, he or she might have a smaller gain by your leaving it to them at your death as opposed to gifting it to them during your life.

Another way to give is to pay tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These types of transfer are exempt from federal gift and estate tax.

When giving, you should consider the annual gift tax exclusion. This is a federal exclusion that allows you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees without incurring federal gift and estate tax or federal GST tax. This applies only to gifts of present interest.

We have just touched the surface of gifting assets. Before giving away any of yours, take the time to talk with an estate planning attorney or certified financial planner.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at

Your question and his response might appear in a future column.