December 4, 2023
The Season of Giving
Nearly half (48%) of Americans are expected to travel during this holiday season. Presumably, many will visit the other half that decided to stay home. Expectations are likely to be high that the food will be plentiful, the injuries during the family backyard touch football game will be minor, and Aunt Debbie will love that poodle sweater you bought her for Christmas (that you now wish were a simple pair of hoop earrings).
Ah, ‘tis that time of year. The season of giving is upon us. Close to 50% of charitable gifts (and nearly 100% of Christmas gifts, by the way) are made in the month of December. It can be a busy time of year for most people, with decorating, shopping, cooking, traveling, skiing, sledding, skating and holiday parade watching to be done. This is the traditional time for gift-giving, but there can be many advantages to making financial gifts earlier in the year, to both family and charity.
As you read in last month’s article by Lauree VanderVeen, entitled “Annual and Lifetime Gifts for 2023 and Beyond,” gifting limits will be increasing for 2024. The federal gift tax annual exclusion amount will be $18,000 per person (a $1,000 increase from 2023). The lifetime gift tax exclusion amount will increase to $13,610,000 (a jump of $690,000). The lifetime exclusion amount is how much a person can transfer during their lifetime without incurring a federal gift tax. The annual exclusion amount is how much a person can transfer each year (so long as it is a present interest), with anything exceeding that amount counting towards the lifetime amount.
In addition to simplifying that end of year to-do list, here are three potential benefits to making your planned gifts earlier in the calendar year (and 2024 is just around the proverbial corner).
First, the gift gets done. With even the best of intentions, unexpected events (life distractions, poor health or even death) during the course of the year could intervene and prevent the successful execution of a well-thought-out gifting strategy. Getting it done early in the year will ensure that the intended gifts are completed and any resulting benefits are realized.
One small detail to keep in mind when making gifts with personal checks. The completion of the gift will depend on the recipient. If to a charity, the gift is complete when the check is signed and “in the mail.” If the charity then cashes the check in the following year, the gift still counts in the prior year. For individuals, the gift is not complete until the check is actually deposited by the donee. Thus, if you include a gift check in a holiday card in December, but it is not cashed until January, the IRS will treat the gift as being made in January. Making gifts earlier in the year can help avoid such unintended consequences.
Second, the recipient can make use of the gift much earlier. Whether the gift is to family or charity, the funds can be applied immediately to current needs. The donor has the added benefit of observing how those funds are applied throughout the year. If they are satisfied with the recipient’s stewardship of the gift, there is plenty of time to consider additional gifts or contributions.
Third, the gifted amount and any growth on that gift, is out of the donor’s estate. This is a subtle way to possibly increase the gift beyond the IRS limits. For example, Dan would like to make an annual exclusion gift of $18,000 (the maximum) to each of his three children in 2024, or a total of $54,000. If he makes the gift at the beginning of the year, he not only moves $54,000 out of his estate, but any appreciation on that gifted amount. If a diversified investment would have returned 7% during the year, Dan effectively moved an additional $3,780 of growth from his estate, or a total of $57,780.
While traditions can be anchoring and comforting, be intentional with your choice to keep them going. Gift-giving at the end of the year may be right for you, but there are some measurable benefits to making them earlier. At least give the timing some thought. After all, with gifts, that’s what counts.