[PB Notebook] Plan Gifts Early to Maximize Tax Benefits

Chamakkrye Hana Bank Pyeongchang-dong PB Center GOLD PB Manager

Since the dawn of humanity, one of the greatest characteristics of humankind has been creating valuable things and passing them on to future generations while continuously developing them. Thanks to this, modern humans are able to live in highly advanced civilizations, and this is also why we expect our generation to live better than our predecessors or even our parents' generation, and for our descendants to live even better.

The method of passing down wealth accumulated through hard work in the parents' generation to their descendants is generally done through inheritance or gifting. Currently, the inheritance tax rate in South Korea reaches up to 50% of the inherited property, which is relatively high compared to other countries worldwide. Although inheritance tax has positive social effects, from an individual perspective, it is necessary to prepare in advance with a long-term plan to pass on as much wealth as possible to descendants.

First, it is advisable to gift assets to spouses and children in advance. When gifting to a spouse, up to 600 million KRW every 10 years can be gifted tax-free, and when gifting to adult children, up to 50 million KRW every 10 years (20 million KRW for minors) can be gifted without gift tax. If additional gifts are made within 10 years after the initial gift, the amounts are combined and progressive tax rates apply, so it is best to gift every 10 years. Also, assets gifted more than 10 years before inheritance are not included in the inheritance property.

Second, gifting growing assets or assets temporarily depreciated can maximize the gifting effect. If stocks or real estate expected to appreciate are gifted to children in advance, the appreciation will occur under the child's name, resulting in tax savings. If you hold a fund currently at a loss compared to the purchase price, gifting it at the current low price can be considered in anticipation of future recovery. When purchasing commercial real estate, if children hold even a partial share, rental income accumulates to them, and they can also benefit from the leverage effect through real estate value appreciation and mortgage loans.

Third, utilize spousal deductions and joint payment of inheritance tax. When inheritance occurs, the deceased's entire estate is inherited by the spouse and descendants, and inheritance tax must be paid. Unlike gift tax, which is paid separately by each recipient, inheritance tax can be paid jointly by any of the heirs. By first using the spousal deduction amount (500 million to 3 billion KRW) and having the spouse pay the inheritance tax using the inherited assets, more wealth can be passed on to the children’s generation.

Fourth, it is advisable to manage assets transparently for at least 10 years before inheritance occurs. When inheritance happens, during the inheritance tax filing and investigation, the deceased’s financial transaction records and gift declarations for the past 10 years will be examined. If there are unclear cash movements or insufficiently declared gifts within a certain period, additional inheritance tax including penalties may be imposed, so caution is necessary.

Finally, to prevent family disputes after inheritance and to ensure smooth execution of the deceased’s wishes, it is beneficial to use a substitute will trust. A substitute will trust is a trust service where the inheritance is pre-designed according to the individual’s wishes during their lifetime, and the bank is responsible for executing it upon their passing. It is recommended to establish a customized long-term inheritance and gifting plan with experts at specialized PB centers such as inheritance and gifting specialized PB centers, and to use substitute will trusts for asset management that connects generations.

This content was produced with the assistance of AI translation services.