retirement

Gifting: 3 Areas You Shouldn't Overlook

How do you plan to pass the gift of your good financial fortune on? Defining your goals and creating a giving strategy is key to beginning the process.

You’ve been fortunate enough to build personal wealth, and it’s important to you that your family, friends and the organizations you believe in benefit from your success. Giving feels good and allows you to practice your core values. But in order for your giving to be meaningful, you need a plan to make the most of it.

What are your gifting goals? For example, if you have grandchildren, do you wish to give to each at a particular life milestone? Contribute to a college fund? Is equal gifting the right thing to do, or is there one person or organization that could benefit more?

There are many things to consider before gifting, and although there are benefits to estate planning, that should not be the sole motivation for gifting.

Ask Yourself Questions and Examine Motivations

Any amount gifted to a family member, friend or organization is bound to be cherished, but have you asked yourself whether the recipient really wants or values the gift, or does it solely satisfy your personal goals?

Gifting your grandchild college tuition may be a dream you’ve had for years, but make sure a college education is something they value as well. Ensure that nothing can undermine the purpose of your gift. Imposing conditions, such as attending your alma mater, can result in resentment instead of gratitude.

You are in an ideal situation with the ability to give to those you love. What if you could better determine a gift that your grandchild would value? It could be possible that they would appreciate a donation to a charity of his/her choice, or perhaps a gift toward a down payment for a future home.

When it comes to giving to a charity, you should be confident your donation is going to the right organization and used for your intended purpose. Align your community interests when selecting an organization, finding one that demonstrates passion for a specific cause and a commitment to demonstrating better community outcomes.

Presenting Your Gift

It’s important that your giving goals, objectives and motivations match your recipient’s best interests.

Pay close attention to the message you’re sharing and explain the life you wish for them — possibly that you deeply value higher education because it can ultimately lead to many life advantages.

A gifting scoreboard can serve as a productive tracking method and communication tool that illustrates your plan’s progress and fairness. This allows you to analyze progress against your defined success measures, so you can align decisions with your long-term goals. With this tool, you can see all of the success metrics supporting your goals. Consider creating one in advance of meeting with potential recipients.

If gifting directly to a family member is not a current goal for you, but you wish to involve your family in your giving strategy and decision making, there are a variety of gifting vehicles available, such as annual gifts, estate plans and trusts. Regardless of which one you choose, it will allow you to put an official process in place around your strategy. Family engagement and a formalized structure can help your gift make the biggest impact.

Maximizing Your Gift Value

There is more to gifting than just determining who and how much. It’s vital to be educated on the numbers in order to maximize your gift value and diminish tax exposure.

Under current tax law for the year 2020, you can gift up to $11.58 million to others ($23.16 million for a married couple) during your lifetime without incurring federal gift taxes. The amount of gift tax exemption used during your life also reduces the federal estate tax exemption. By shifting wealth to heirs and beneficiaries early on and allowing it to compound over time, you can avoid significant estate taxes. You should also keep the annual gift exemption in mind. Under this exemption, you can gift up to $15,000 ($30,000 as a married couple) to anybody or any type of trust each year without taxes owed by you or the recipient.

Sitting down to create a giving strategy may seem like a small piece of the puzzle, but a well-structured plan can help achieve success for you and those you are benefiting. Remember to evaluate your motivations, focus on your messaging and look for ways to maximize the value of your gift.

SEI does not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax adviser.

About the Author

Michael S. Farrell

Managing Director, SEI Private Wealth Management

Michael S. Farrell is Managing Director for SEI Private Wealth Management, a business unit of SEI that provides private wealth management solutions, serving high-net-worth individuals and families.

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