2017 Annual Gift Tax Exclusion
The 2017 federal gift tax exclusion did not change and remains $14,000. If you make a gift of $14,000 to 4 people, the gifts are considered nontaxable by the federal government. Additionally, none are required to be reported on a federal gift tax return.
You can also split gifts with your spouse in 2017, a married couple can leave a total of $28,000 to each person. The stipulation for the split gift is that you must report the split gift on Form 709 (federal gift tax return).
Lifetime Gift Tax Exclusion
Each person also has a lifetime gift tax exclusion In addition to the annual exclusion. The lifetime gift tax exclusion is $5.49 million dollars for 2017. The lifetime gift tax exclusion is the total amount that can be given away by an individual during their lifetime to any number of people that will be free from gifting taxes. If you give away any amount of your lifetime gift tax exclusion, then this amount will be subtracted from your estate tax exemption when you die. For example, if an individual makes taxable gifts (i.e. – gifts above the annual exclusion) of $3,000,000 over her lifetime and the individual dies in December 2017, then the individual’s federal estate tax exemption will only be $2,490,000. In other words, $3,000,000 in lifetime gifts is subtracted from the 2017 federal estate tax exemption of $5,490,000, which only leaves $2,490,000 of the exemption.
By applying your lifetime gift tax exclusion, a gift in excess of the $14,000 annual exclusion will result in no gift tax owed but you must file a Form 709 with the IRS. When you die, your estate tax exemption will be reduced by the amount of the gift tax rate is 40% for the amount above the lifetime gift tax exclusion which means above $5,490,000 in 2017. You should plan now to take advantage of your 2017 gift tax exclusion amount so that you can ensure that gifts are “completed” before December 31, 2017.
Rather than cash gifts, consider gifting securities or interests family-owned entities or privately held businesses. Annual exclusion gifts may be made directly to your beneficiaries or to trusts that are established for their benefit. However, gifts to trusts will not qualify for the gift tax annual exclusion unless the beneficiaries have limited rights to the gifted assets (commonly known as “Crummey” withdrawal powers). If you have a trust that contains beneficiary withdrawal powers, it is important that your Trustees send Crummey letters to the beneficiaries anytime you (or anyone else) makes a trust contribution. Without these letters, transfers to the trust may not qualify for the gift tax annual exclusion.