By: Laurie Valentine- COO & Trust Counsel
While most people know there is a federal estate tax payable by the estates of folks who die with taxable estates which exceed the unified credit amount (currently $5.25 million), many do not know that gifts made during life can also trigger another transfer tax—the federal gift tax.
Like the federal estate tax, lifetime gifts to U.S. citizen spouses and charities incur no federal gift tax—no matter how much is given to your spouse or the charity. And, each person can shelter a total of $5.25 million of lifetime taxable gifts with the unified credit. To the extent the unified credit is used up with lifetime giving, it will not be available to shelter the transfer of your wealth at your death.
The annual exclusion shelters from gift tax the first $14,000 of gifts made in a given year to an individual other than your spouse. If total gifts in a given year to one individual exceed the annual exclusion amount, then a federal gift tax return must be filed to report the gift. You won’t have to pay gift tax unless your total combined taxable gifts for the current and prior years exceed the unified credit amount.
You may also pay medical bills for any person of any amount directly to a healthcare provider and not be treated as making a gift. Likewise, tuition payments made directly to an educational institution on behalf of someone else are excluded from gift tax liability. Giving someone funds to pay their medical expenses or tuition doesn’t qualify for these exclusions.
Spouses may “split” gifts made with assets owned by just one spouse by filing a gift tax return in which each spouse reports a gift of one-half the value of the gifted asset.
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The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.