With the holiday gift giving season upon us, it is only fitting to discuss gift-giving, and more specifically, gifts you receive from others as well as gifts you give to others. We’re not talking about the air fryer you were gifted by your Great Aunt Mary or the sherpa fleece slippers you plan on buying for your brother Ronald, rather, we’ll be talking about gifts of a substantial nature, how to handle them, and what’s the best course of action once you give or receive them.

Bountiful Gifts – Receiving from Others

If you find that Santa has placed a sparkling new gem under your Christmas tree or if a family heirloom menorah arrives at your home, it’s time to count your blessings. There are also times when loved ones pass away and leave gifts behind. If you’ve been given a gift or inherited a gift such as jewelry or tangible property of substantial value. I bet you are asking yourself, what is substantial value? If replacing the item creates a financial burden, then let’s consider it of substantial value. If not of high value, you likely choose to simply enjoy the gift without further action or worry.

First, you’ll want to get it appraised. An appraiser qualified to evaluate the item has the necessary expertise and knowledge of current values for both resale and insurance purposes. Plus, an outsider’s perspective helps the recipient separate the true financial value from the emotional value of an item received. If it is something of significant dollar value, you’ll most likely want to insure it. Family heirlooms such as collectibles, furniture, artwork, or jewelry are some common examples. These are irreplaceable, and thus they should be protected against theft or unforeseen accidents.

You’ll also want to take into account any tax implications on your inherited gift as well. Taxes are determined by the value of the item or property upon the date of your loved one’s death. Make sure you keep a record of any stock or house or land that might appreciate in value and what that value is once you’ve inherited it.

If you inherit physical items, there are no taxes on them. However, certain categories of assets, investments or property assets are not taxed, but the earnings they generate are taxed. It is best to keep your CPA informed of them. Make sure to document inherited gifts and have a clear record of them. That way, your items won’t get caught up in any disputes in the event of divorce or another death in the family.

Share the Bounty – Giving Gifts to Others

When roles are reversed and you are the gift-giver, you’ll also want to keep a few things in mind. First, if you’re giving a gift of cash, be aware that the annual gift allowance (for 2021) for any individual to another individual is $15,000. This includes married couples. If you and your spouse would like to gift money to a loved one, each of you can personally give $15,000 independent of the other. This gift allowance is set to increase $16,000 for 2022.

If you wish to give a gift larger than $15,000, you’ll want to communicate your intentions with your CPA in advance. That way, you’ll be prepared once tax season rolls around as an annual gift tax return is filed. If your estate plans include making annual gifts be certain to include your attorney and financial advisor in the conversation. They can help ensure gifts are properly funded.

Be sure to talk with your loved ones in advance as well before deciding to give them any tangible items or real estate you may own. Don’t assume they’ll want whatever you plan to give them. Have some discussions now, before you make any plans. Having conversations now will help to avoid difficult situations once you’re gone. If your kids don’t want to inherit the beach house, for instance, have a talk with them and arrange for it to be sold instead of someone inheriting it.

Giving and Receiving

Be smart with your gifts, whether you’re giving them or inheriting them. Take steps to appraise and insure your gifts and make solid plans for your future taxes.

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