Each year you can give gifts up to a particular limit without the value of these gifts counting toward your available lifetime unified gift/estate tax exclusion. Utilizing this exemption is a great way to transfer funds in a tax-free manner while you are still alive while keeping your available unified exclusion intact.
It should be noted that the gifts that you give utilizing this exemption do not have to be direct transfers to the recipients.
Funding certain types of trusts that are going to benefit others can be considered taxable gifting by the Internal Revenue Service. So you can stay within the annual exemption as you consistently make contributions into a trust for the benefit of a family member.
Consider another scenario. Let’s say you were to give out equity shares in a family limited partnership to family members. You would be giving taxable gifts if you were to do this, but you could stay within the annual exemption amount and the gifts would wind up being tax-exempt.
Last year the maximum amount that you could give as a gift in a tax-free manner without reducing your available unified exclusion was $13,000. This year the maximum has been raised by $1,000 to $14,000.
This can be multiplied in a hurry if you are married. Both you and your spouse would be able to give $14,000 to any number of people each year, so you could combine your giving power and give $28,000 in a tax-free manner annually to any number of recipients.
And of course, if you have married children or grandchildren you could give this amount to both husband and wife, enabling an even greater annual transfer.
Paul A. Kraft, Estate Planning Attorney
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.
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