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Weiss Education August 2017


Not Properly Using the IRS-Approved Annual and Lifetime Gift Allowances

August 25, 2017

Everyone is familiar with Ebenezer Scrooge, the fictional character from Dickens' A Christmas Story, who is given a second chance to change his evil ways by the three Ghosts of Christmas.

His tale is the classic example of true repentance. A total change of character for good.

Little is known, however of his deceased business partner, Jacob Marley who is a chained and tormented ghost, damned to eternally wander the earth as punishment for his greedy, selfish and uncaring attitude towards mankind.

Through some unknown means, it is Marley who actually arranges for Scrooge’s possible redemption, an opportunity he either was never offered or one that he refused.

Regardless Marley's eternal existence is absolute misery, a terrible price to pay for being a miser.

Perhaps the best part of my job is to witness the goodness that is created when those that have plenty share with those that have less.

I thoroughly enjoy giving them direction on how to maximize what they give to their loved ones and charities and minimize what they give to Uncle Sam.

Unfortunately, the vast majority of affluent Americans don't comprehend the need to share their wealth with their loved ones while they are still alive. Furthermore, they don’t understand the power that "leverage" can create and the many tax benefits that can and will be realized if they apply this simple concept.

In fact, in most cases, by leveraging the IRS stipulated gift allowance, all estate shrinkage can be totally eliminated. Yet only a handful of prudent taxpayers utilize this basic, but powerful, strategy.

Each and every American can, by current law, gift $14,000 annually – completely tax free – to anyone they want.

I often joke in estate planning seminars that I can legally drive up to a homeless man on the corner and really make his day by telling him that by virtue of the gifting laws, I would like to cut a check in his name for $14,000 that would be totally income, gift and estate tax free.

Of course, doing so may not be the wisest move. But it would be very effective in shrinking one’s estate. Consider how such a gift would benefit those you really care about, at the same time reducing your estate annually by the amount of the gift.

A married couple can each gift this allowance, meaning that they can gift up to $28,000 per year per beneficiary. A couple with five children, five grandchildren and two great grand-grandchildren, can gift up to $336,000 per year.

By maximizing this tax free strategy annually, one's estate could shrink with relative ease. That is, of course, if the growth doesn't outpace the gifts.

Annual gifts are a “use it or lose it” proposition, with no carry forward provisions into the next year.

Another option that is still on the table is to consider transferring all or a portion of your lifetime gift allowance, currently unified with the estate tax exclusion of $5.49 million.

By establishing an Integrated Dynasty Trust, you will be able to retain control, continue to receive income and FREEZE the transferred asset so that all future growth is out of your estate.

Of course, once you have used your lifetime gift you cannot use it again when you die. Transferring your lifetime exclusion in an Integrated Dynasty Trust is an advanced estate planning strategy and should be discussed with a top notch estate planning attorney.

True, some might question the wisdom of gifting these funds to your family while they are young, believing that if they start to depend on the annual or lifetime gift they will become counterproductive.

However, there is no law requiring that the recipients must actually receive the gift in cash; nor do they need to have access to the gift immediately.


By transferring the gift inside an irrevocable trust, such as a Spousal Support Family Dynasty Trust (SSFDT), an Integrated Family Dynasty Trust (IFDT), or an Irrevocable Life Insurance Trust (ILIT), it can be stipulated that while the gift is given today, it cannot be accessed until certain parameters are achieved, or the recipient reaches a given age.

You should maintain as much control as you can over these gifts for as long as possible. Never let your beneficiaries dictate what should be done with your gift to them as this usually spells disaster.

You are the benefactor and should always maintain control, even after you are gone.

Another idea: rather than giving the gift outright to your heirs today to do with it as they please, transfer today's gift in a vehicle that has the ability to immediate and perpetually expand by multiplies.

This strategy is known as "The Gift Tax Leverage Strategy", and can be implemented for a married couple or for those that are single.

Example: Bob and Carol are both aged 65 and have one son Steven, by implementing "The Gift Tax Leverage Strategy" and transferring their annual gift of $28k for the benefit of Steven, their gift would mushroom to $3,000,000 of tax-free cash for delivery when the surviving spouse dies (see Figure 1).

This is accomplished by establishing a Joint and Survivor (JLS) Life Insurance policy inside an ILIT, SSDT, or an IFDT and using the $28k gift each year to fund the insurance premium.

The proceeds could be used to pay future or income taxes, create a guaranteed estate for Steven and his children, replace assets that are gifted to charities or simply to cover debt.

The Gift Tax Leveraged Strategy is easy to implement, effective and can allow your estate to remain intact and out of the hands of the federal government.

Until next time,

David Phillips

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