Changing Distributions After Death – Part 2

In my post last week, I talked about a scenario where family members wish to change the distributions they are to receive after a loved one’s death.  Because the death sets in place the wishes of the decedent (person who died) either by the will or the intestacy laws if there is no will, any changes made would be considered gifts from one beneficiary to another.

In order to understand the implications of these gifts we first need to understand the gift tax laws.  New Jersey does not have a gift tax, however, there is a federal gift tax.  The rate, depending on the size of the gift, can be as high as 40%, although there are ways to avoid it.

For example, there is an annual gift tax exclusion.  In 2022 annual gifts of up to $16,000 per person can be made without triggering the need to pay gift tax or file a federal gift tax return.  In the case where the donor (person making the gift) is married, a gift of $32,000 can be made without any gift tax implications.  Where the gift’s recipient is also married the annual amount can be as high as $64,000, all exempt from gift tax.

This may be an easy way to redistribute an inheritance after death provided the amounts are within the annual exclusion range.  The gifts can be made each year up to these annual limits until the desired amount to be redistributed has been reached.

But what if that doesn’t help?  What if we are considering much larger gifts that could take years to complete using the annual exemption?  Is there another way? Yes, there may be another option which we’ll get to next week.