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The federal estate and gift tax rates for 2020 have increased to $11,580,000, while the annual gift tax exclusion limit remains at $15,000. This means a tax return for a gift only needs to be filed for amounts which exceed the annual exclusion amount.
Gift tax is individual, so each person who makes a gift (donor) and each who receives (donee) is counted as separate. For example, an individual who has three children can give each $15,000 and each will qualify for the annual exclusion. In that example, a total of $45,000 can be gifted without triggering a gift tax and without the requirement to file a gift tax return. If the individual has a spouse, the spouse can also gift $15,000 to each child so the total gifted under the exclusion now increases to $90,000. And if each child is married, the donors can gift an additional $90,000 to each spouse for a total of $180,000.
The donees do not need to be related and the gifts can be other than cash as long as the fair market value is $15,000 or less. No limit exists on how many gifts can be made in a calendar year. The only limitation is the total amount gifted to each donee by each donor cannot exceed $15,000 in any calendar year.
The annual gift tax exclusion is an opportunity to pass estate assets to the next generation without a federal estate tax. Other considerations apply and this article simplifies the gift tax exclusion and the amounts apply only for 2020.
You should discuss with your tax advisor before making any decisions or gifts.
Stuart T. Shmookler is a member of Gross McGinley’s Wills, Trusts, & Estates Group. His practice focuses on real estate, estate planning, elder law, and trusts, as well as providing counsel to small and family-owned businesses.