The gift tax annual exclusion amount went up from $15,000 were it has been since 2018 to $16,000 for 2022.
These new numbers really mean that wealthy taxpayers can transfer more to their heir’s tax-free during life or at death.
The estate tax is assessed at 40% on the biggest estates. By transferring wealth to heirs early, the rich can avoid the estate tax. They do so by making big gifts, typically in the millions that gobble up the $12 million exemption amount. Also, by making a lot of $16,000 annual exclusion gifts that don’t count against the $12 million.
Estate attorneys prefer clients make lifetime gifts rather than waiting to die and use the exemption at death because when you’re making a lifetime gift. Making a $10 million gift today assets worth $10 million are out of your estate, and any growth on the $10 million is outside of your estate.
Gifts
You can also give away $16,000 to as many people as you like including, kids, grandkids, and their spouses with no federal gift tax consequences. Spouses can each make $16,000 gifts, doubling the impact. A series of $16,000 annual exclusion gifts can add up, and they don’t count toward the $12 million exemption amount. Estate attorneys like their clients to make annual exclusion gifts and make those gifts as soon as possible rather than waiting until the end of the year. Don’t wait to make the gifts because of appreciation happening outside of your estate.
Or, make unlimited direct payments for medical and tuition expenses for as many people as you’d like, with no gift or estate tax consequences.
For the wealthy making big gifts, there are many ways to get money out of their estate. Outright gifts, loans to family members and special trusts. If you are thinking about it start early.
Another reason to make gifts is, if you live in one of the 17 states or DC that impose separate estate and or inheritance taxes, there’s even more at stake with death taxes sometimes starting at the first dollar of an estate. (See where not to die in 2021) www.onealcpa/contactus
