Decrease Your Estate-Planning Taxes by Giving Away Your Cars

As you age, it is important to start planning the distribution of your estate. If you have a large estate and want to avoid excessive estate taxes when you pass, you should take advantage of the annual exclusion rule by giving away cars to your loved ones. This will not only help save you money but also provide people you care about with great transportation.

What Is the Exemption?

The annual exclusion rule is actually pretty simple to understand but is something that few people take the time to learn about. It states that $14,000 gifted per year and per recipient is exempt from taxes, including estate taxes, should you be planning your will. For example, if you gave your nephew a gift of $30,000 in cash, $14,000 of that would be exempt from estate taxes.

However, married couples can double their gift exemption to $28,000, even if only one spouse gives the gift. These gifts must be claimed on your taxes during the calendar year when you give them out. Remember that this is an annual gift exemption, so you can give another $14,000 (or $28,000 if your spouse is still alive) every year.

Why Give Away Cars As Gifts?

Giving away cars to lower your estate tax has many advantages. For example, cars are fairly easy to value, making it simple to reach the $14,000 or $28,000 threshold. And some cars, such as high-value luxury cars, might even increase in value if they are rare. Giving these to your family members is a great idea, especially if you never drive them any more.

Cars are also a useful gift. Giving your loved ones beautiful pieces of art as a gift might seem nice in theory, but few people have any practical use for art. They are more likely to be happy to receive a car, and this can make the gift even nicer.

How Do You Give Away a Car?

Giving away a car legally isn't as simple as just handing the keys to your loved one and telling them to take it. You must process the "sale" of the car properly to ensure that the government knows you gave it away as a gift. To finish this process you must:

• Discuss the terms of the gift, including processing fees, taxes, licensing fees, and insurance fees
• Purchase a bill of sale or pick one up at the DMV and fill out all the necessary sections, including the date of the transfer and the value of the vehicle
• Pay off any liens or loans (if there are any) and transfer the vehicle title to the name of the receiver, making sure to write "GIFT" in the section indicating the sale price
• Take the paperwork to the DMV (or fill it out there to ensure it is done properly) and pay the processing fees and taxes

Make sure to keep receipts of the "sale" and give them to your tax-preparation expert. They can then use the receipts to let the IRS know you have given the vehicle as a gift. As a result, they can adjust your estate tax properly and ensure that you save yourself and your loved ones money when you pass away. For more help, you can also work with an estate-planning attorney. 

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