Gifting versus Will Distributions

Gifting and will distributions are two different ways of transferring assets, each with its own characteristics and implications. As an experienced Folsom estate planning lawyer, clients often inquire about whether gifting or distributions is the superior route for their particular situation. Here’s a comparison between the two:

Gifting:

1. Timing:
   • When it Occurs: Gifting typically happens during the lifetime of the person making the gift (the donor).
2. Control:
   • Ongoing Control: The donor retains control over the assets until the gift is made, at which point the control is transferred to the recipient.
3. Tax Implications:
   • Gift Tax: Depending on the jurisdiction, there may be gift tax implications for the donor if the value of the gift exceeds a certain threshold. However, many jurisdictions allow for annual exclusions and a lifetime exemption.
4. Documentation:
   • Gift Deed or Documentation: Depending on the type of asset, a formal gift deed or documentation may be required to legally transfer ownership.
5. Probate:
   • Avoids Probate: Gifting allows assets to pass directly to the recipient without going through the probate process.
6. Revocability:
   • Irrevocable or Revocable: Gifts can be irrevocable (cannot be undone) or revocable, depending on the terms set by the donor.

Will Distributions:

1. Timing:
   • When it Occurs: Will distributions occur after the death of the person creating the will (the testator).
2. Control:
   • Posthumous Control: The testator maintains control over their assets during their lifetime, and the distribution occurs based on the terms specified in the will after their death.
3. Tax Implications:
   • Estate Tax: In some jurisdictions, an estate tax may apply based on the overall value of the deceased person’s estate. The beneficiaries usually do not incur tax liabilities on their inheritances.
4. Documentation:
   • Probate Process: Will distributions typically go through the probate process, during which the court oversees the distribution of assets according to the terms of the will.
5. Probate:
   • Subject to Probate: Assets distributed through a will are subject to the probate process, which can be time-consuming and may involve legal fees.
6. Revocability:
   • Revocable Until Death: A will can be revised or replaced by the testator during their lifetime. It becomes irrevocable upon the testator’s death.

Considerations:

• Control During Lifetime:
  • Gifting provides an opportunity for the donor to see the impact of the gift on the recipient during their lifetime. Will distributions, however, occur after the testator’s death.
• Tax Planning:
  • Both gifting and will distributions may have tax implications, and it’s important to consider these factors when planning an estate.
• Probate Avoidance:
  • Gifting is a way to avoid probate, while assets distributed through a will are subject to the probate process.
• Specificity:
  • A will allows the testator to specify how their assets should be distributed, while gifting may involve more informal arrangements.

Conclusion

Deciding between gifting and will distributions often depends on the specific goals, preferences, and circumstances of the individual involved. Consulting with a Folsom estate planning lawyer is advisable to ensure that the chosen approach aligns with the individual’s overall estate planning objectives and complies with relevant laws. If you have any other questions about gifting versus will distributions, contact Thapar Law at 916-579-0605 or send us a message.