If you’re planning to give large gifts to your children or grandchildren, it’s important to understand how gift tax works and how that plays into your estate. You don’t want the person you’re trying to help to end up with an unexpected tax burden.
Lifetime Gift Tax Exemption
Estate tax laws change, so it’s important to speak with an estate planning specialist to get the most current information, but right now, the lifetime gift and estate tax exemption is $11.18 million, which means that’s the total amount you can gift in your lifetime and as part of your estate without having to pay gift tax. Married couples each get this amount and, if paperwork is properly filed on the death of one spouse, then the second spouse can preserve the deceased spouses’ remaining gift exemption, giving couples over $22 million in lifetime gifting. However, even if you’re nowhere close to this total, you may need to file gift tax returns to the IRS.
It’s also important to note that the lifetime gift tax exemption is part of the federal estate tax and that lifetime gifts may count against the total that is transferred tax-free as part of your estate. For individuals with larger estates, it becomes especially important to keep track of lifetime gifts so that you can plan on how to transfer assets or ensure that there are enough liquid assets available to cover estate taxes.
Yearly Gift Limit
Every year, you can make gifts up to $15,000 per recipient without worrying about gift tax. Gifts over the $15,000 amount are what reduce your federal estate tax exemption. So a gift of $25,000 would mean that the first $15,000 was part of the annual gift exclusion and the remaining $10,000 would count against your lifetime estate and gift tax exclusion.
Certain types of gifts are always considered nontaxable. This includes gifts to approved charities, gifts to U.S. citizen spouses, covering tuition when it’s paid directly to an institution (though this does not include room and board expenses), gifts to cover medical needs that are paid directly to the medical facility, and gifts to political organizations.
For individuals with sizeable estates, or who want to give large gifts in a single year to help children buy homes or pay other expenses, these numbers are important to know. Handling an estate with large assets doesn’t need to be hard. The estate team of lawyers from Dunn Law Firm can help by understanding your personal goals and giving you guidance on how best to structure your estate to reach those goals. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.