Spread Your Wealth to Your Loved Ones

Physician's Money Digest, August15 2004, Volume 11, Issue 15

You've worked hard over theyears, saving money to livecomfortably and realize yourdreams. However, after reaching thesegoals, how can you ensure that yourassets remain in the hands of your lovedones? One method many physicians takeadvantage of is gifting.

Gifting Your Money

Currently, you may give up to $11,000per person each year without incurringany tax consequences. This is called anannual exclusion gift. If you are married,you and your spouse may jointly give upto $22,000 per person annually using thistype of gift. For example, if you and yourspouse have two children, you may giveeach child $22,000 per year. There is nolimit to the number of people to whichyou can give.

You may be wondering why youwould want to gift your money now,rather than leave it to your beneficiariesper the terms of a will or trust. Simplyput, it all comes down to how muchmoney your heirs would receive if yougive it as a gift now vs how much if theyinherit the funds after you die. Forexample, if you make an $11,000 annualexclusion gift to your child this year, theywill receive exactly $11,000. However, ifthey inherit the same $11,000 at yourdeath and your taxable estate places youin the 48% tax bracket, they would onlyreceive $5720—that's a big difference.

Determining the Gift

But before you decide on gifting to aloved one, there are a few things youshould keep in mind. First, you should takeinto account how much money you willneed in order to live out your life in thestyle to which you're accustomed. Also,while it is nearly impossible to know exactlyhow much you will need, be sure to leaveenough in your estate to cover unexpectedexpenses that may come up later in life.

Once you have determined that youhave enough saved to account for yourpersonal expenses and possible emergencies,you may begin to think about howmuch you are comfortable giving andwhere those assets should go. You maywant to start a college savings fund foryour children or grandchildren, or maybeyou'd prefer to help a friend start a newbusiness. If you have elderly parents, youcould consider a gift of stocks or bonds—the income from these could be used fortheir care and support. You might evenwant to gift to adult children so they canstart saving for their retirement years.Another benefit, sometimes overlookedin gifting to individuals during your lifetime,is the opportunity to see the recipientsenjoying your gift. You can watchyour child or grandchild go to college, orsee your friend's business take off.

Whether or not you use giftingdepends on how much you have savedand how much of your estate you anticipatespending in your lifetime. Whenplanning gifts or other strategies, makesure you talk with your financial consultantto help you evaluate the full scopeof your financial and estate plan.

Joseph F. Lagowski is vice president,investments, and a financialconsultant with AG Edwards inHillsborough, NJ. He welcomesquestions or comments at 800-288-0901 or www.agedwards.com/fc/joseph.lagowski. This article was providedby AG Edwards & Sons, Inc, member SIPC.