What Should I Know About Gifting and Taxes?

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Gifting can help you minimize the value of your estate.

The federal estate tax exclusion amount is $11.58 million in 2020.

This is an appealing number for those with large estates.

Gifts in excess of this exclusion amount will taxed at 40 percent.

This tax will be owed by April 15 of the following year.

According to a recent The National Law Review article titled “The Case for Gifting Now (or At Least Planning for the Possibility),” any amount used from this exclusion for gifts during your lifetime reduces the amount you can shelter from estate taxes when you die.

Gifting can complicate your tax situation.
Taxes can influences your gifting decisions.

Yikes!

If you are married, know that couples have an exemption of $23.16 million without having to pay federal estate or gift taxes.

This amount is actually quite large when you consider gifting.

Between 2000 and 2001, the federal exclusion was $675,000.

On January 1, 2026, the exclusion amount is scheduled to revert to $5 million (indexed for inflation).

Congress could make a decision to continue the current exclusion, but it is not a guarantee.

To play defense, you should prepare for a lower exemption in your estate planning.

There are many reasons why Congress may choose to lower the exemption.

What are they?

The government may use estate and gift taxes to compensate for the negative impact of the COVID-19 pandemic.

There has been a precedent set in the past of applying mid-year tax legislation retroactively.

The elections could change the party control of the Congress or the White House.

A budget reconciliation process could be used to pass tax changes.

Although the estate tax exception has never been lowered, the estate taxes exemption has never been this high.

Because you cannot predict the future, you should discuss your gifting options with an experienced estate planning attorney.

All taxation is tied directly to politics.

Vote accordingly.

Reference: The National Review (Aug. 20, 2020) “The Case for Gifting Now (or At Least Planning for the Possibility”