Private Client Services

Gifting to Reduce Tax Liability

Posted on November 18, 2021 by

Margaret Amsden

Margaret Amsden

Share This

Share on facebook
Share on twitter
Share on linkedin
Share on email

With the end of the year quickly approaching, the time for year-end tax planning is now, especially with the impending changes outlined in the Build Back Better Act (BBBA) set to be implemented at the start of 2022. One of the major changes affects high-net-worth individuals looking to make gifts to reduce a potential future estate tax liability. Currently, the maximum gift amount without incurring the 40% federal estate tax is set to be reduced by almost half from the current $11.7 million to $6 million. As a result, those with substantial assets and their advisors have been scrambling to make gifts before the end of this calendar year to take advantage of the $11.7 million cap on gifting as outlined in the Tax Cuts and Jobs Act  of 2017 (TCJA).

However, recent changes to the language in the House of Representatives’ latest proposal released on October 28, 2021 indicates an entirely new direction. It eliminates the intention to reduce the amount individuals can gift over a lifetime—at least for now. While the most current BBB Act H.R. 5376 no longer contains modifications to the estate or gift tax exclusion amounts, this current $11.7 million exclusion amount is still subject to a sunsetting provision that will result in the exemption being cut in half effective January 1, 2026 without any action from Congress. It is not unheard of for Congress to reinsert previously drafted legislative proposals at the last minute so taxpayers and their advisors should remain vigilant.

Gifting to Reduce Future Estate Tax Liability

One way to reduce tax liability is through gifting using the annual exclusion for gifts which currently remains at $15,000. This exclusion covers gifts made to each individual recipient in a tax year allowing for a taxpayer to make multiple gifts amounting to $15,000 without incurring taxes or utilizing their lifetime exemption on the gifts. Any gift made to a spouse is not considered to be under the purview of the gift tax due to separate marital deduction policies. Additionally, gifting as a married couple increases your gift-giving capacity exclusion to $30,000 per recipient, but this scenario would require a gift tax return to be filed.

Original language in the BBB also targeted typical avenues of making large gifts into trusts like Irrevocable Life Insurance Trusts, Spousal Lifetime Access Trusts, and Grantor Retained Annuity Trusts (ILITs, SLATs, and GRATs). This is no longer the case if the latest BBB update becomes the final version—though this is not guaranteed. The BBB Act would have targeted these kinds of trusts even if they were established prior to the BBB and includes any future contributions to the trusts that are included in the donor’s estate at death. It would still be possible to avoid some of these tax complications if this provision is ultimately revived by, for example, fully funding an ILIT to cover future life insurance premiums in a lump sum instead of making regular annual gifts to the trust that would be subject to taxes.

Gift When Your Value is Low

As business owners are considering transitioning their business to the next generation, some have experienced a devaluation of their assets during the pandemic and as a result now may be the time to make a gift to their family. At the end of the day, the best time to gift is often when the value of assets is low, so the amount of lifetime exemption used is also low. This allows you to transfer the most assets that could experience appreciation. On the other hand, the basis of an asset that is received as a gift is a carryover basis, so that means the donor is also potentially transferring an income tax liability to the beneficiary. This conflict means taxpayers will need to carefully weigh the options, and discuss the impact of their decisions with their tax and legal advisors.

Charitable Giving to Reduce Taxes

Another means of reducing your future estate tax liability and your current income tax liability is by charitable gifting. The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains provisions that encourage additional charitable giving and has been extended through the end of 2021. These provisions allow for $300 above-the-line deductions for charitable gifts made in cash for non-itemizing taxpayers. This also increases the charitable deduction from an adjusted gross income cap of 60% to 100% for some contributions by taxpayers who itemize, and increases the limit of the corporate tax deduction from 10% to 25%. With the increase in these deduction caps, now is the time to discuss funding a Donor Advised Fund or other vehicles to accelerate charitable giving.

Contact Us

If you are working on your year-end or overall estate plan, contact us today to learn more.

Margaret Amsden


Leading the firm’s private client services group, Margaret’s strategic & educational approach fosters a culture of learning among clients and colleagues.

Related Insights

Private Client Services

Do You Know What You’re Worth?

Posted on January 14, 2022 by

Margaret Amsden
Knowing your net worth can help you evaluate your financial health and plan for the future. From defining net worth to understanding what assets and liabilities are, here are some basic considerations to help you get started.

Private Client Services

Gifting to the Family: Don’t Wait too Long!

Posted on December 2, 2021 by

Margaret Amsden
This has been an eventful, record-breaking year for mergers and acquisitions, up 158% from the same time last year. Stock values continue to rise while interest rates remain at record lows, creating a prime environment to make deals and close transactions. Consider this guidance to help take advantage of the current tax code and valuation discounts before they disappear.

Private Client Services

Is Your Wealth Being Managed by the Right Team?

Posted on October 4, 2021 by

Margaret Amsden
Though CPAs and wealth managers are two different advisors, together they play an essential role in helping individuals make short- and long-term financial plans. To make the best plans for their future, clients are discovering that a partnership between these professionals can further enhance their financial goals and performance.

Sign up for our newsletters

Get general business and industry-specific news and knowledge straight from our accounting specialists.

The Sound of Automation Podcast

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Insights & Perspectives

Data-driven decision making: 3 key insights for business owners

What does it take to build a data-driven business? For self-reliant leaders who feel they’ve hit a plateau when it comes to scaling a business, adopting a data-driven approach can be a breakthrough success strategy. Using data in a more focused way helps good engineers become good entrepreneurs. It’s about creating balance. Here we take a look at key insights for business owners when using data in decision making.

Read More

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content