Many people consider transferring property or money to loved ones during their lifetime instead of waiting until after death. Lifetime gifting can provide immediate help to family members and may reduce the value of your taxable estate. However, New Jersey law and federal tax rules add complexity to these decisions. Knowing both the benefits and drawbacks helps you make choices that align with your goals.
Why gifting can be advantageous
Gifting allows you to witness the impact of your generosity while you’re alive. You might help a child buy a home, pay for education, or support a relative facing financial hardship. These gifts can also reduce the size of your taxable estate. Although New Jersey no longer imposes a state estate tax, large estates may still face federal estate taxes, so strategic gifting can provide savings.
You also have flexibility in how you give. Some people choose to make smaller annual gifts to multiple recipients, while others transfer larger sums through trusts that dictate when and how the money can be used.
The risks of giving too soon
When you make a gift, you permanently transfer ownership. If your financial circumstances change, you cannot reclaim that asset. Large gifts may also trigger reporting obligations. The IRS allows an annual gift tax exclusion of $18,000 per recipient (as of 2024). Gifts above that amount require filing a gift tax return, though most people won’t owe any tax.
New Jersey’s inheritance tax still applies to certain beneficiaries, such as siblings, nieces, and nephews. Gifts made within three years of death may be included in your taxable estate for inheritance tax purposes, reducing the intended benefit to your recipients.
Making gifts with strategy
Thoughtful planning is key. Keep detailed records of every gift and consider spreading them out over time to use annual exclusions effectively. Trusts can help manage how and when recipients receive their inheritance, providing greater control and protection for both you and your beneficiaries.
Creating balance in your estate plan
Gifting can strengthen family bonds and reduce taxes, but it should never jeopardize your own financial security. The best estate plans balance generosity with long-term stability, ensuring your intentions are fulfilled both now and in the future.