Grow Your Wealth by Giving: The Tax Benefits of Family Gifts

A frequent question we field from people we meet is, “Can you gift money to family members tax-free?” The answer is a resounding yes!  This practice is more than an act of generosity; it’s a strategic financial maneuver that can help reduce tax liabilities.

Our experienced wealth management team appreciates that your question is more than merely a way to increase your assets. It’s equally about producing a legacy for your family and investing in their long-term well-being at the same time. 

This blog will highlight the benefits of tax-free gifts to family members that may benefit your current and future tax situation.  

Learn More About Our Cogent Conversations and Living Life on Your Terms. 

2023 Gift Tax Rules

The Gift Tax is levied on certain gifts or wealth transfers made during your lifetime. According to U.S. law, any gift or combination thereof to a single recipient in a given year that exceeds the annual exclusion amount is subject to this tax. It must be reported on a gift tax return. The gift giver, not the recipient, is usually responsible for paying this tax. 

For 2023, the limit for annual exclusion gifts is $17,000 per recipient. This doubles to $34,000 for married couples. This gift can be given to any individual, including family or non-family members. 

Think of this as a financial win-win. You’re expressing love and care toward your loved ones while strategically reducing your taxable estate. Each dollar you gift is less subjected to a potentially hefty estate tax, which can be as high as 40% for large estates. In the long run, this strategic gifting can result in significant tax savings, effectively preserving your wealth within your family or people you care about.

However, to ensure these gifts remain tax-free, there are a few principles to remember:

Be mindful of staying within the boundaries of the annual IRS gifting limits. Any excess amounts must be reported. If you do, you must report the excess, which may reduce your lifetime estate tax exemption.

Tax-free gifts aren’t limited to cash. They can also include stocks, bonds, or even real estate. But be aware: The gift’s value is calculated based on its fair market value at the time of the gift.

Gifts made directly to an educational or medical organization for someone else’s benefit do not count toward the annual limit. This exemption can be an excellent way to support a family member’s education or healthcare costs while decreasing your taxable estate.

Is it Worth it? 

While the $17,000 annual tax-free gift to family members might seem restrictive, especially for those with substantial wealth, there is a workaround. By leveraging the lifetime exemption—which stands at $12.92 million for individuals and $25.84 million for couples in 2023—you can give away much more substantial assets tax-free during your lifetime. However, any portion of the lifetime exemption will decrease the amount left to shield your estate from estate taxes, usually upon the demise of the surviving spouse.

How Does This Fit in with Comprehensive Financial Planning? 

Implementing a tax-free gifting strategy should be a part of a comprehensive financial plan. Your plan should include factors such as your current financial well-being, your long-term financial goals, and the needs of you and your family members. Giving more substantial gifts now might make sense if you’re confident in your financial stability late in life and want to see your loved ones enjoy a partial inheritance during your lifetime.

Remember, the core of sophisticated financial planning lies in its personalization on a family-by-family basis. Your circumstances, needs, and goals are unique, as is your financial plan. 

At Cogent Strategic Wealth, we’re here to help you navigate your financial journey, ensuring your prosperity remains a gift—not a burden—for you and your loved ones.

To conclude, wealth is more than a balance sheet. It’s about your family’s well-being, legacy, and the impact you leave behind. 

Tax-deductible gifting is a viable strategy that allows you to provide for your loved ones while reducing your tax burden.

The Cogent Difference

We know that successful individuals require more sophisticated financial services that are beyond the scope of conventional strategies. We are organized as a family-office-style wealth management firm to service your multi-generational needs. 

We pride ourselves on cultivating deep, enduring relationships founded on mutual trust, transparency, and a unified vision for achieving your financial goals.

At the heart of our approach is the conviction that your family’s financial legacy can be nurtured and amplified through generations. We design tailored strategies, including investment management, tax planning, estate planning, risk management, and philanthropy. Our commitment is to build lasting bonds, offer individualized guidance, and protect your assets with a forward-thinking, risk-conscious set of strategies.

Our approach to wealth management is rooted in evidence-driven investing, which involves constructing portfolios based on rigorous academic research and empirical evidence. By leveraging tax-advantaged accounts and implementing tax-loss harvesting strategies, we help our clients minimize tax liabilities, enhance after-tax returns, and maximize long-term wealth accumulation.

We’re here to help you navigate your way, ensuring your prosperity remains a gift—not a burden—for your loved ones. 

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Cogent Strategic Wealth provides investment advice only through individualized interactions. Certain information is based upon third-party data, which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. © 2023, Cogent Strategic Wealth®