Gift Taxes Explained
The annual exclusion amount for 2024 is $18,000. This means that a person can give up to $18,000 to as many people as they like each year without incurring any taxes on the gifts. Additionally, this annual gift tax exclusion applies separately to each spouse, allowing couples to collectively give away up to $36,000 per donee in 2024 without any gift tax implications.
However, if the annual limit is exceeded, the donor must report the gifts on a federal gift tax return (Form 709) and utilize their lifetime gift tax exemption amount, which $13.61 million in 2024. This is often a point of confusion as it is the donor, not the donee or recipient of the who who must file a gift tax return and report the gift.
In addition to the annual exclusion amount (i.e. $18,000 in 2024), the IRS also provides a lifetime gift tax exemption, which allows individuals to give away up to $13.61 million (as of 2024) in assets or property over the course of their lifetime and/or as part of their estate after their death. The amount that exceeds the annual exclusion amount will be deducted from the individual's lifetime $13.61 million gift tax exemption. While no immediate taxes are owed on the excess gifts, their lifetime exemption will be reduced by the amount of the excess gift. It's important to note that depleting the lifetime exemption limit through large gifts may have implications on estate tax planning, as the remaining exemption available at the time of the individual's passing may be reduced. Therefore, individuals who frequently exceed the annual gift tax exclusion should consider the long-term impact on their estate and consult with tax professionals to develop effective strategies for managing their gift-giving while optimizing their tax benefits.
The federal estate and gift tax exemption, currently set at $13.61 million per person and $27.22 million for married couples in 2024, is anticipated to sunset on January 1, 2026. Without congressional intervention, the exemption is expected to be reduced by about half, reverting to approximately $6.8 million per individual and $13.6 million for married couples. This reduction in the estate tax exemption could significantly impact wealthy individuals and families engaged in long-term estate planning. Consequently, advisors recommend that individuals and families reassess their estate plans, consider strategies for gifting, and plan for the potential reduction in the exemption to ensure that they can maximize the present rules before the sunset occurs. To take advantage of the current favorable estate tax provisions, some options such as lifetime gifting, utilizing trusts, and considering charitable planning are being suggested. Therefore, preparing for and understanding the implications of these changes in advance is crucial for effective estate planning.
Lifetime Planners make it extremely easy for you to create your will and then have it probated after your passing. All our estate planning packages are fully customizable and includes options that enable you to select who you would like to serve as the executor or personal representative of your estate, and specify exactly where you want your assets to go upon your passing.