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Annual Gifting

December 10, 2013 Douglas Davis

If you are like me you get to the last few months of the year and think about how to give gifts to your children or others that you love.   Funny… the IRS even has something to say about that!  For the IRS it’s all about assessing taxes on just about everything we do and giving gifts is another one of those areas where we have to know the rules.

Fortunately for most of us the annual gift tax exemption was increased in 2013 to $14,000.  This means that you can give any person up to $14,000 without any gift tax liability and without having to file a gift tax return (IRS Form 709).  Any gift to an individual in excess of that amount this year, requires the filing of a gift tax return but may not require the actual payment of tax, depending upon the extent of any lifetime gifting you have done in the past.

Making annual gifts of the exemption amount is a wonderful estate planning tool because it transfers assets from one generation to another without any tax liability whatsoever.  If you have a number of children or grandchildren, then you can give away significant amounts of your estate without liability.  For instance, if you have two children, you can give $14,000 to each child, spouse and grandchild.  That is eight recipients at $14,000 apiece for a total of $112,000 per year.

Don’t forget that your spouse can also make gifts of an additional $14,000 per year, per person.  If your spouse gave an additional amount up to the annual exclusion to each recipient, then the total gifts combined would be $224,000.

If you would like to establish a gifting pattern or make regular annual gifts, you might want to consider establishing a trust for the beneficiaries and then make gifts directly to the trust.  That way you can control distributions to minor children or grandchildren.  Making gifts to trusts is more complex but for some individuals it provides significant tax benefit and the ability to pass a legacy to future generations.

If you would like to consider how lifetime gifting can help you meet estate planning objectives and obtain tax benefits, contact an estate planning attorney to learn more about the opportunities and benefits of lifetime giving and legacy planning.