I know. This sounds obnoxious. But one of my top financial priorities these days is giving away the wealth I’ve accumulated.
What most rich folks do is hoard everything they’ve got until they croak. Then they have it distributed post-mortem by lawyers working with trusts and wills.
From everything I’ve seen and read, this is a terrible idea. The good feelings you imagine your benevolence will engender most often devolves into bitterness, resentment, and altercations among those you leave behind.
I like what Warren Buffett did when he was about my age. He gave a huge chunk of his wealth to Bill Gates’s charitable foundation. Buffett understood that giving away billions was an enormous responsibility. So rather than simply naming some charities in his will, he put the money in the hands of someone he trusted to put it to good use while he (Buffett) was still alive.
K and I have the same general idea: We want to give away most of our money while we are still alive. We are assigning some assets to fund several charities that the family foundation currently manages. (So they will be self-funded in perpetuity.) And we’re putting other assets into the family limited partnership, which will be directed by our sons. But we are also in the process of giving away money to friends and family members. This we are doing with the help of legal counsel.
Not surprisingly, the IRS has restrictions on how much you can give away and to whom. These encumbrances are embodied in the tax code. If you exceed those limits, you (not the recipient of your gift) must pay a tax on it. And, yes, that means you have to pay a tax on money that has already been taxed.
The current limit on yearly gifts is $15,000 per person. So as a couple, K and I can give $30,000 a year to whomever we want without incurring a gift tax.
This is not a problem if you and your spouse want to give, say, $90,000 to your ne’er-do-well brother John. You can do it, tax-free, in 3 years. But if you want to give him enough to keep him in spam sandwiches and reefer for life, you may want to give him $300,000. That will take 10 years.
In our case, $30,000-a-year gifts won’t make a dent in the amount of money we want to disburse. And happily, there is a way to do what we want to do withou tpaying yet another tax on our money.
It’s called the “lifetime gift tax exemption.” Here’s a summary of what I’ve learned about it: READ MORE