The Internal Revenue Service has a lifetime gift tax exemption. The amount of the exemption is adjusted annually for inflation. For 2020, the exemption was $11.58 million. This means persons who died in 2020 could give away up to $11.58 million in assets without paying estate or gift taxes. Additionally, the IRS provided clarification that persons making gifts during the period 2018-2025 while the exclusion amount is high, will not be harmed when after 2025 the lifetime exemption is reduced to the pre-2018 level of $5 Million adjusted for inflation.
Federal Estate Tax
The gift exemption is tied to the federal estate tax. In 2020, if an estate was worth more than $11.58 million ($23.16 million for married couples) including any lifetime gifts above the annual exclusion, the estate had to pay a federal estate tax. For persons with large estates that exceed the exemption, a lifetime gifting program may provide a means for reducing the taxes that will be owed by the Estate.
Annual Gift Exclusion
Currently, each individual can make gifts of $15,000 annually to each donee (person receiving a gift) and these gifts are excluded from reportable lifetime gifts. For persons with larger estates, beginning to gift annual amounts to children and grandchildren annually may be a mechanism for ultimately reducing or eliminating an estate tax upon death.
Exempt Gifts
Some gifts are always exempt, regardless of the amount. Those include gifts to IRS-approved charities, gifts to your spouse as long as your spouse is a United States citizen, gifts to cover tuition as long as the gift is given directly to the school, gifts for a person’s medical expenses, and gifts to a political organization.
Gifts during 2018-2025
Lastly, because the estate and gift tax exemption will sunset at the end of 2025, the IRS has clarified that the higher of the exemption amount at the time of gifts made during this period or the exemption at the time of death will apply for a person who makes large gifts during the period 2018-2025. For individuals and couples with larger estates who wish to take advantage of the larger exemption, gifts of up to the exemption amount can be made and if the exemption at the time of death is less than it was when the large gifts were made, the larger exemption will apply. While this may not completely eliminate the estate tax due, it could greatly reduce the tax for individuals who are able to make large gifts.
Keeping Records
Be sure to keep records of all gifts, even those that are exempt. The tax code changes frequently and you may need to show proof of some of your gifts. If you are not sure on the exemptions, contact our attorneys at Grissom Law, LLC before you make a substantial gift. You can decrease the tax you owe by carefully managing your assets, including gifting assets you know you are going to will to someone in the future. Our Georgia estate attorneys can help you set up an estate and advise you on the gift tax exemption and the federal estate tax.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site you understand that there is no attorney-client relationship between you and Grissom Law, LLC.