Can you give gifts to avoid the estate tax?
It is satisfying to achieve your financial goals, and to know that your loved ones will be able to benefit from your legacy in the future. At the same time, there is one source of concern to temper the sense of accomplishment.
There is a federal estate tax that can have a significant impact because it carries a 40 percent rate. In this post, we will go into more detail. We will also address the question of gift-giving as a way to get around the death tax.
Estate Tax Exclusion
Most people do not have to be concerned about the estate tax because there is an exclusion. This is the amount that can transferred before the rest would be subject to tax.
In the year 2024, this exclusion will be $13.61 million. The Tax Cuts and Jobs Act of 2017 has created a provision that allows this record-high exclusion. Since 2011, the estate exclusion is portable. This means that a surviving spouse can use their own exclusion and the remainder of their deceased spouse’s exclusion.
Federal Gift Tax
The estate tax was originally enacted in 1916. People gave gifts for 12 years to avoid the estate tax. The lawmakers who supported the tax did not like this arrangement. In response, they implemented a gift-tax several years later. After a relatively short repeal, the gift tax was reinstated for good in 1932.1001010These taxes are unified within the tax code. It applies to large lifetime gifts that you give along with the estate that will be transferred after your death. It applies to large lifetime gifts that you give along with the estate that will be transferred after your passing.
Additional Gift Tax Exclusions
In addition to the unified exclusion, there is a separate annual gift tax exemption that you can use to give up to $18,000 to any number of gift recipients each calendar year.
To be clear, you would be using a portion of your unified lifetime exclusion to give gifts within a given calendar year to any one person that exceed $18,000.
This may not sound like a lot of money to someone that is exposed to the estate tax, but the annual exclusion can be used effectively over time.
For example, let’s say that you are married, and you have three married children. You and your spouse can combine your exclusions in order to give up to 36,000 dollars to any number individuals per year. You could give $36,000 each to each spouse, which would equal $72,000 for a couple multiplied three times. Annual tax-free transfers of $216,000 will add up if you give these gifts consistently over an extended period.
In addition to direct gift giving, this exclusion can be used to fund certain types of trusts, and it can also be used to distribute interests in family limited partnerships.
There are two additional gift tax exclusions that fly under the radar. You can pay for school tuition and medical bills of others without paying tax. The medical exclusion extends to the payment of health insurance premiums for others.
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Even if you are not exposed to the estate tax, you should work with an Oklahoma City estate planning lawyer to develop a custom-crafted plan that is right for you and your family.
If you are ready to get started, you can send us a message to request a consultation appointment, and we can be reached by phone at 405-843-6100. We also have an office in Tulsa, and the number for that location is 918-615-2700.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors Read More! Larry Parman, Attorney At Law – Latest Posts
