Clearing the Confusion on Lifetime vs. Annual Gifts

5:37 pm Estate Planning

Confused man 150x150 Clearing the Confusion on Lifetime vs. Annual GiftsA common source of confusion when it comes to gifting assets is lifetime versus annual gifts and what the rules are for each.  We explain:

Lifetime exclusion.  With the passage earlier this week of the American Taxpayer Relief Act of 2012 (ATRA), the lifetime gift tax exclusion is now set at $5 million per person, adjusted for inflation.  In 2013, the adjusted amount is $5,250,000 per person.  For married couples giving jointly, it would be twice that amount — $10,500,000.  You can gift up to that amount without incurring any gift tax; after that amount, the tax rate is set at 40 percent.

You are expected to keep a running total of your lifetime exclusion gifts and report those to the IRS every year so that when you die, the IRS will have a total of what has already been used.  For married couples, the unused portion of a deceased spouse’s lifetime exclusion can pass to the surviving spouse under the now-permanent portability rule.  However, this does not happen automatically – the executor of the estate must apply for portability.

Annual exclusion.  You can give up to $14,000 to as many individuals as you wish each year without it counting against the lifetime exemption.  This can add up to some serious cash if, say, you are married and have a child with a spouse and two children.  You and your spouse together can gift $28,000 to each member of your child’s family – so that would be a total gift of $112,000.  Gifts that exceed this amount will be counted against your lifetime exclusion.

Help is available to you by contacting your Southern California financial planning experts today.

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