You can’t help but catch your breath a little as you gaze into the eyes of your first grandchild, baby Ava. You hold her closely, feeling the warm bundle settle in your arms, and you gently kiss the top of her delicate, sweet face. You want nothing more than for her to be happy and well taken-care-of.
You wouldn’t settle for anything less than the best for yourself and your loved ones, and your little grandchild is no exception. Each holiday season, you will probably spend countless hours searching for the perfect gift for her.
The Perfect Gift
How about a gift that grows with the child, and can be used to pay for her education, first home, take care of her children, or even retirement. How about a gift that cannot be taken away through creditors, bad decisions or lawsuits? A gift that can never be lost or forgotten? How about a gift that can be like a reward for the child developing stewardship skills and achieving life goals, rather than a silver spoon? A gift that can be accessed in the event of a severe illness, just when it is needed most? A gift that can be transferred to your granddaughter’s children if she passes prematurely? How about a gift that reduces your taxable estate, giving Ava a greater portion of your wealth?
The new tax bill signed on December 22nd increases your lifetime gift tax exemption to $11.2 million per individual ($22.4 million per couple). In addition, you may give up to $15,000 per spouse to any individual (up from $14,000 last year) without tapping into your estate tax exemption. So, if you are married, you can reduce your taxable estate by $30,000 per recipient, per year without having to file gift taxes. Above $30,000 per recipient, your gift will reduce the estate tax exemption amount by the total of the gift that is above $30,000. For example, if you give $130,000 to Ava in one year, the portion of your estate that will be exempt from taxes when you pass on will be reduced by $100,000 from $22.4 million to $22.3 million. Since the higher estate tax exemption limit is set to expire in 2026 (and may be changed by Democrats before then) now might be the best time to set up a large gift, up to $22.4 million, before the laws change again.
Protecting your Gift
The thing is, you don’t want her to have it right away; she is only a baby. And you don’t want her to have it when she’s a child, or even a teenager. You want the money to collect each year, and when she is mature, she will be able to use it to help with major life goals, such as college, marriage, a first home. So, you put the money into a life endowment. You set the terms by which she can access the funds as a safeguard.
The life endowment is an insurance policy with Ava set up as the beneficiary. This ensures the money will be shielded from taxes; including taxes on any income that the assets generate, and taxes on withdrawals. Also, the life endowment doesn’t count against financial aid eligibility. So Ava can receive financial aid for college, if applicable, and the endowment can then be used to pay any remaining college expenses. It would transfer to her children in the event that she dies prematurely, free of estate taxes.
If you would like to learn more about how you can set up the type of gift that lasts a lifetime, feel free to reach out to one of our experienced team members here at Axia Global. Our goal is to make a measurable difference in your financial life, so we would love to help you (or your affluent clients) use gifting in a way that makes sense for you.