One way to reduce the size of your estate is to gift assets to your loved ones. If done right, you can substantially reduce the size of your estate without paying gift taxes or estate taxes.
The Federal Government levies taxes on what they call “gratuitous transfers of assets.” These are financial gifts in the form of money, stocks, bonds, property, or anything else you wish to give during your lifetime. If you make a gift that exceeds a certain dollar amount, known as your annual gift tax exclusion amount, then the gift eats away at your estate.
Luckily, there are certain exceptions to the gift tax as outlined in Section 2503 (b) of the IRS tax code. One such exception is the Annual Gift Tax Exclusion. This is an amount that can be transferred annually to as many different recipients as you would like without resulting in any gift tax on the transfer.
In the year 2013, the Annual Gift Tax Exclusion amount is $14,000 per recipient. There is no limit on the number of recipients to whom you can make these qualifying gifts to. The keyword here is “qualifying,” meaning that not all gifts qualify for the exclusion.
The IRS will not consider the gift to be qualified unless the person that receives the gift has a present interest or immediate ownership in the asset.
If the person making the gift is married than each spouse can gift $14,000 to an unlimited number of recipients, for a total of $28,000 per recipient. This is called gift-splitting. Each spouse is using their individual Annual Gift Tax Exclusion amount and thereby doubling the amount that can be gifted in any given year.
The Annual Gift Tax Exclusion is a great tool to reduce the size of one’s estate without paying any gift taxes. If used properly this technique will drastically reduce your taxable estate after your death, and could thereby reduce your associated estate taxes.
For more information on the gift tax exclusion or other estate planning matters, please contact us today at 888.222.1328.
Contributed by MH Arrowhead, Prescott and Flagstaff Estate Planning Attorney and Partner David T. Eastman.
Why Choose Morris Hall:
You have a number of options when it comes to estate planning, so why pick Morris Hall? First off, estate planning and asset protection are a very complicated endeavor and you should only trust someone who focuses exclusively on those matters. Also, MH is a proud member of The American Academy of Estate Planning Attorneys (AAEPA) which provides us additional support, advanced training, tools and information that is not available to others – which means that we can better protect your assets and your loved ones. We are one of only two firms in Arizona that belong to the AAEPA and are the only firm in New Mexico that has been granted membership. If you have assets and loved ones that you want to protect, you are in good hands with MH. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.