If you have a large estate and want to start giving it away, but want to limit your tax liability, consider using the annual gift tax exclusion. What that means is that you can give up to $13,000 per person per calendar year and neither you nor the recipient has to pay taxes on it. So, you can give $13,000 per year to 10 people or 1,000 people and there will be no taxes. And you can do that year after year. (The amount of the exclusion is increased from time to time.)
You and your spouse can go in together and gift each person $26,000 tax free per person per calendar year.
Talk about a way to become popular!
Consider it a gift on both ends, because the payout helps the donor as well. By giving away the estate little by little every year, it reduces the amount of estate tax that may have to be paid upon your death. You also get to observe how your beneficiaries handle money and the enjoyment of seeing them benefit from the gifts while you are alive.
Gifts given under the annual gift tax exclusion also do not count toward the $1 million lifetime gift exemption. Once someone gives out more than $1 million in gifts, they have to start paying the gift tax.
Just stick to the idea of $13,000 per person per year, and you won’t have any problem.
Other gifts that are not subject to the gift tax are
- charitable gifts
- gifts to a spouse who is a United States citizen
- gifts for educational expenses
Contact an estate planning lawyer to find out other ways to plan wisely and limit estate taxes.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.