They say that it is better to give than to receive, and when you actually engage in an act of giving you have the direct experience of the truth in this old saying. This is something to keep in mind when you are planning your estate. If you are exposed to the estate tax, you are going to have to employ tax efficiency strategies, and the giving of gifts is one option that is available to you.
At the present time there is a $5 million combined gift/estate tax exemption. So you could technically give gifts totaling as much as $5 million in value throughout your life without assuming any gift tax liability. But, if you did so the entirety of your estate would be subject to the estate tax, so this exemption is really not going to help you gain tax efficiency in a direct manner if the value of your estate exceeds the unified exclusion threshold.
The good news is that there are other gift tax exemptions that can be utilized to great advantage. One of them allows for the gifting of as much as $13,000 to an unlimited number of gift recipients every year. Since this exemption is given to every individual, if you are married you and your spouse could give gifts equaling as much as $26,000 each year to any number of people without incurring any gift tax exposure.
To take it a step further, if you were to have a married child or grandchild that you wanted to give gifts to you and your spouse could give $26,000 to both your child or grandchild and his or her husband and wife, enabling the tax-free transfer of up to $52,000 per year. If you make intelligent advance plans you could greatly reduce the value of your estate in this manner while in essence giving your loved ones some of their inheritances in advance.
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- Leaving Assets Can Be Tricky – Part 3 - August 13, 2020