Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
If estate planning is a topic that’s not even on your financial-planning radar at this moment, you’re not alone. Many people put it off until their later years, when end-of-life decisions feel closer or more relevant.
But including estate planning in your current wealth management plan — and disbursing some of your assets now — has numerous benefits, from tax advantages (for you as the donor and for your giftees) to the sheer joy of seeing your loved ones utilize the gift while you’re still alive.
Here are four ways you and future generations of your family can benefit from financial and other gifts now, rather than waiting to receive them in your will.
In 2019, IRS rules allow individuals to give up to $15,000 to another person (married couples can give up to $30,000) without either of you incurring a gift tax, or having the amount count toward your lifetime gift tax exemption (currently $11.4 million). In fact, you can give up to $15,000 to as many people you want to, and the same rules hold true.
Making Direct and Outright Gifts
Two ways to share the financial love — in unlimited amounts and without incurring the gift tax — are to make tuition payments on behalf of another individual directly to an educational institution, and to pay a health care provider for another individual’s medical expenses or health care premiums.
You may also consider an outright gift, such as stock, that qualifies for the gift tax exemption. Just keep in mind that, when you gift stock to someone, you are also “gifting” them your cost basis in the stock. Thus, other factors should be considered, such as the tax liability that may come from the sale of the asset or the investment income generated. A financial advisor can help with these types of details.
Keep educational savings accounts in mind, too. You may be familiar with the tax advantages they offer in terms of saving for college and other educational expenses. Making deposits in those accounts is a great way to invest in a child’s or grandchild’s future while also sharing your assets before they become part of your estate.
Establishing UGMA and UTMA Accounts
Under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), parents may set up, and be the custodian of, an account for their minor children, which grandparents can then contribute to. Gifts of cash or property can be made to these accounts without incurring tax liability, because such gifts are subject to the gift tax exemption. Once a gift has been made to the account, however, it must be used for the sole benefit of the child. And, upon turning 18 (with UGMA) or 21 (with UTMA), all the assets in the account are turned over to the now-grown child.
Creating a Trust
If you prefer to set up a structure that enables you to control how and when a loved one receives money and other assets from you, you might want to consider a trust. Two common trusts created for younger children are the minor’s trust, which holds the assets until the child turns 21, and the Crummey trust, which holds the assets until a designated age. Trusts can be complex mechanisms, with various tax and legal implications, so it’s best to consult with financial and legal advisors as part of your overall wealth management strategy.
As you consider what your financial plan looks like now and into your future, it’s wise to do so with estate planning in mind.
Kristen Fricks-Roman is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Atlanta. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor. Morgan Stanley Smith Barney, LLC, member SIPC. CRC 2235406 09/18