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Gift Tax & Planning

Gift Tax Basics

There is a corollary section to the estate tax code that taxes lifetime gifts to non-charitable and non-spouse beneficiaries. In any single calendar year, each individual may gift up to a total of $14,000 (the “annual exclusion” in 2013) to as many individuals as he or she wishes without any gift tax consequences. Any gift to an individual of greater than the annual exclusion must be reported to the IRS on Form 709. The amount in excess of the annual exclusion will be first applied against your lifetime gifts exemption (currently $5,250,000 in 2013) and the estate tax exemption (currently $5,250,000 in 2013). No tax will be due on lifetime gifts until the lifetime exemption has been exhausted. Qualified gifts made directly to an educational or medical provider do not count toward the annual exclusion. The annual exclusion does not apply to most gifts of future futures as opposed to current interests. As a result, while gifts made in trusts can provide some of the most dynamic estate-reduction results, they must be done in a manner consistent with IRS rules and regulations.

Some Factors to Consider for How and When to Gift

  • Age and health
  • Emotional and family circumstances
  • Economic position
  • Marginal income tax brackets
  • Capital gains shifting
  • Tax basis of property

Some Gift Giving Devices Include

  • Irrevocable Life Insurance Trust (ILIT)
  • Qualified Personal Residence Trust (QPRT)
  • Family Limited Partnership (FLP)
  • Grantor Retained Annuity Trust (GRAT)
  • 2503(c) Minor’s Trust
  • Generation-Skipping Transfer Trust (GST)

In sum, a gift program should be designed with your overall objectives and strategies in mind. Various types of gifts should be made in a coordinated fashion bearing in mind your goals, the annual exclusion and your remaining exemption amount.

Related Code:
Federal Estate Tax Code

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