The Impact Gift Taxes May Have on Your Estate Planning
Gift taxes are taxes on the transfer of property from one individual to another without receiving full value in return. This tax applies whether or not the donor intends the transfer to be a gift. Essentially, if you give property (including money), the use of property, or income from property without expecting something of equal value in return, you might be making a taxable gift. This also includes selling something for less than its full value or making an interest-free or reduced-interest loan.
The Gift Tax Exemption
The Internal Revenue Service (IRS) provides an annual gift tax exclusion, which allows individuals to give away a certain amount each year without incurring gift taxes. For 2023, this exclusion amount is $17,000 per recipient. This means you can give up to $17,000 to as many individuals as you want each year without any gift tax consequences. Gifts above this amount may count against your lifetime exemption, which is currently $12.92 million (as of 2023).
How Gift Taxes Interact with Estate Taxes
Gift and estate taxes are unified, meaning they share the same exemption amount. The lifetime gift tax exemption is part of the overall estate tax exemption. This means that any large gifts you make during your lifetime will reduce the amount you can transfer tax-free upon your death. For example, if you use $2 million of your lifetime gift tax exemption during your life, only $10.92 million will be available as an estate tax exemption when you pass away.
Strategic Gift-Giving in Estate Planning
Gift-giving can be a strategic tool in estate planning to reduce the size of your taxable estate. By taking advantage of the annual gift tax exclusion, you can transfer wealth to your beneficiaries gradually, reducing the value of your estate and potentially lowering estate taxes. Additionally, making gifts to family members can help them financially during your lifetime and provide for their needs without waiting for inheritance.
Impact of the Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, significantly increased the lifetime gift and estate tax exemption amount. This increased exemption is temporary and will revert to pre-2018 levels in 2026. For individuals planning their estates, this means that the current higher exemption provides a unique opportunity to make substantial gifts without incurring gift taxes. However, it’s essential to consider how the future reduction in the exemption might affect your overall estate plan.
Contact Our Experienced Estate Planning Lawyer Today
Gift taxes play a significant role in estate planning, affecting how and when you transfer assets to your beneficiaries. By understanding the rules surrounding gift taxes and taking advantage of the available exclusions and exemptions, you can strategically reduce your taxable estate and provide for your loved ones.
For personalized guidance on how gift taxes may affect your estate plan, contact Taylor Odachowski Schmidt & Crossland, LLC. Our experienced estate planning attorneys can help you develop a comprehensive strategy to protect your assets and ensure your wishes are honored. Reach out to us today online or at (912) 634-0955 to schedule a consultation and start planning for your future.
