When you are engaged in the process of estate planning, a large portion of the endeavor involves properly positioning your assets. You want to make sure that you have the available liquidity that you need to address any and all contingencies that may come your way, protect your assets in general, and ready them for efficient distribution to your heirs free of any undue erosion. But in addition to this financial planning there is also a human side. The planning is a two way street because you have to create a tidy package, but on the other side of the equation you also have to consider the recipients.
Many people take a lot of pride in the achievements of their families, and it is not uncommon for succeeding generations to embrace the baton that has been passed to them and further the family legacy. Inheritance planning can play a role in this dynamic. There are always going to be concerns about the possibility of a large bequest removing the financial motivation toward personal achievement in an heir or heirs.
One way to address this situation is by giving the gift of education while you are still alive to see the results. By doing so, you pave the way for the success of family members who are still of school age while gaining some estate tax efficiency in the process.
It is true that the lifetime gift tax exemption is unified with the estate tax exclusion so using it to give tax free gifts reduces your estate tax cushion. But, there is an exemption for educational gifts that does not impact the lifetime exemption.
You can pay the tuition of as many students as you want to, equaling any sum of money, free of the gift tax. When you consider the costs of higher education at our nation’s elite institutions, you can see how you would be able to reduce the taxable value of your estate significantly while giving the gift of knowledge. And in the process, you provide your family members with the foundation that they need to reach their full potential as human beings in their own right.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.