We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

Wealth Planning

Providing for your loved ones during your lifetime


Thinking about your legacy and what you want your wealth to accomplish in the long run is a core part of any estate planning journey. While you can structure your plan to take care of your loved ones after you pass away, you can also transfer assets to them during your lifetime, allowing you to see the benefits that your assets bring to them and perhaps reap some tax benefits as well.

Let’s cover the basics first: What exactly is a gift?

A gift occurs when one person—the donor—transfers something of value to any other person or entity—the donee or recipient—and receives nothing of value in return. This includes both clear gifts (e.g., giving money to a donee) and perhaps less obvious gifts (e.g., allowing someone to live rent-free in real estate that you own).

Note that gifts can sometimes be confused with sales or loans, so it is important to structure your gift properly.

When people transfer assets, they may be required to pay gift tax for transfers during lifetime, or estate tax for transfers at death. The taxes are required if the value of the transferred assets exceeds certain applicable tax exemptions. When you make a gift during your life, your beneficiaries (and not you) own all of the appreciation on the gift from the date of the gift onward, so the appreciation is not subject to estate tax upon your death. This is a common strategy to reduce a future estate tax liability.

One of the many reasons you want to work with a lawyer when structuring your gift is that a gift must be complete, that is, you may not retain any benefit from the gift in order for it and its appreciation to be removed from your estate.

With all of this in mind, is giving while living a good fit for you? Here are a few considerations:

What should you do to make a gift?

Once you decide that you want to make a gift, you need to think about what you want to give. The easiest way to gift is to write a check, wire money, or transfer securities to a donee. As long as the amount gifted during the calendar year does not exceed the annual exclusion1, you do not need to do anything else. No one owes any tax on the transfer and no one needs to report the gift. Note, however, that if the amount gifted throughout the year does exceed the annual exclusion (or if you are married and would like to use your spouse’s annual exclusion), you will have to file a gift tax return to report the gift and any exemptions you use (discussed below). Be sure to speak with your tax advisor when making gifts since you may need to file a gift tax return.

Which tax exclusions and exemptions apply to you?

There are a number of reasons why people make gifts. Fundamentally, donors want to take financial care of their beneficiaries, whether those are individuals or charities. However, gifts are often motivated in part by potential tax benefits.

As you contemplate whether gifting makes sense for you, it is important to understand the available exemptions or exclusions from transfer taxes (gift and estate taxes)2:

  • Marital deduction: transfers between spouses who are U.S. citizens are free of any transfer tax; this means that these transfers will not use up any of the donor’s gift tax exemption.
  • Medical and education expenses: payments you make directly to a medical provider or educational institution on behalf of a beneficiary for qualified expenses are exempt from transfer tax.
  • Annual gift tax exclusion: you are able to make gifts up to a specific dollar amount to any number of beneficiaries each year free of any gift tax, and these gifts can be made as one single gift or in multiple stages throughout the year. The cap is $15,000 in 2021, or $30,000 for married couples. As an example, a married donor with four children, after consulting his or her spouse, can give $30,000 to each of the children in 2021 as annual exclusion gifts, or $120,000 in total, without paying any gift tax or using any gift tax exemption. A gift that exceeds the annual exclusion begins to count toward your lifetime gift and estate tax exemption. 
  • Gift and Estate tax exemption: you can exempt from gift or estate tax the aggregate value of transfers during lifetime or at death, capped at $11.7 million in 2021. Lifetime transfers that exceed the annual gift tax exclusion each year use up portions of this exemption.
    • Whatever amount of the gift tax exemption that is not used up during lifetime will be available at death as an estate tax exemption; however, many people choose to gift during lifetime rather than to make gifts at death with the hope that their lifetime gifts will appreciate for the benefit of the donees
    • People who wish to use their gift tax exemption often do so in trust when the gift amounts are large and if they expect that these gifts will last for multiple generations3.
  • Generation Skipping Transfer tax exemption: the GST tax applies to gifts to individuals who are more than one generation removed from the donor—often grandchildren and more remote descendants, or trusts for their benefit. You are able to exempt from GST tax the aggregate value of transfers during lifetime or at death, capped at $11.7 million in 2021, similar to the gift and estate tax exemption.

Note: a single gift could incur both gift tax and GST tax and therefore can use up both gift and GST tax exemption if the donees (or their trusts) are more than one generation away from the donor. Often gifts to which the GST tax exemption applies use up both exemptions and are made in trust since the gifts are intended to last for multiple generations.4

 

Final thoughts for your gifting strategy

 

The best assets to give are often those that you expect to appreciate in value—namely those whose value you believe is low relative to what it should be or will be in the future.  In some instances, it may not make sense to give assets that already have embedded gains, since you would effectively be giving an embedded tax liability. In addition, an asset whose fair market value warrants a valuation discount—because of its lack of marketability, lack of control, or associated restrictions—may be an appropriate asset to give since you would be able to transfer more value for less gift tax exemption when making the gift.

  • If you wish to gift an asset that is hard to value, you will have to obtain an appraisal of that asset and file the appraisal with a gift tax return. There is often a cost associated with obtaining an appraisal. Gifts of cash and marketable securities generally do not require an appraisal.

It is important to work with your tax advisor, as well as with your legal counsel, when making your gifts to ensure that these general concepts of gifting apply to your plan.

 

 

1. The amount of money that one person may transfer to another each year without incurring gift tax. In 2020 and 2021, that amount is $15,000.
2. These exemptions reflect the Federal transfer tax regime applicable to U.S. citizens and permanent residents (green-card holders); consult with your tax advisor to understand your specific state’s transfer tax rules.
3. There are a number of benefits to making gifts in trust. To understand if a trust might make sense for you, consult your JPMorgan representative.
4. There are a number of benefits to making gifts in trust. To understand if a trust might make sense for you, consult your JPMorgan representative.

 

 

 

 

IMPORTANT INFORMATION

Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results.


Check the background of Our Firm and Investment Professionals on FINRA's BrokerCheck

To learn more about J. P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our  J.P. Morgan Securities LLC Form CRS and  Guide to Investment Services and Brokerage Products.

This website is for informational purposes only, and not an offer, recommendation or solicitation of any product, strategy service or transaction. Any views, strategies or products discussed on this site may not be appropriate or suitable for all individuals and are subject to risks. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation. 

This website provides information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). When JPMS acts as a broker-dealer, a client's relationship with us and our duties to the client will be different in some important ways than a client's relationship with us and our duties to the client when we are acting as an investment advisor. A client should carefully read the agreements and disclosures received (including our Form ADV disclosure brochure, if and when applicable) in connection with our provision of services for important information about the capacity in which we will be acting.

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

Equal Housing Opportunity logo

J.P. Morgan Chase Bank N.A., Member FDIC Not a commitment to lend. All extensions of credit are subject to credit approval 

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Please read additional Important Information in conjunction with these pages.