Utilizing a Gifting Strategy for Your Estate – Four Things to Consider

Maximizing the use of the annual gift tax exclusion is one of the most effective estate tax saving techniques available to most taxpayers. If done properly, it is a simple and convenient way to pass a substantial amount of assets to a younger generation without negative tax consequences. Here are four things to consider with regard to a gifting strategy.

  1. Amounts. Please keep in mind that the federal gift tax applies to the giver (the donor) of a gift not to the recipient (the donee). The current annual gift tax exclusion is $15,000 per donee. This amount will increase to $16,000 per recipient starting in January 2022. Accordingly, if you have four children, and eight grandchildren, then in December of 2021, you may give each one a gift of $15,000 for a total of $180,000, and then in January, you could give them $192,000.
  2. Split Gift – Double the Amounts. The annual gift tax exclusion is available to each taxpayer. Therefore, if you are married and file a joint tax return then you may double this gift amount. Therefore, using the prior example, you could, along with your spouse, gift $744,000 (($180,000 + $192,000) x 2) without any negative gift tax consequences. If you have a federally taxable estate, then this strategy would be saving your estate nearly $300k in liquid funds just at the federal level.
  3. Unified Exemption. The lifetime gift tax exemption is part of the unified gift and estate tax exemption scheme under the Internal Revenue Code. This exemption shelters gifts above the annual exclusion amount from tax, and up to the federal exemption amounts. For 2022, the federal tax exemption will increase to $12.06 million.
  4. Gift Tax Return. If the total value of your gifts does not exceed the annual gift tax exclusion limit, then you do not owe any taxes and – generally – you do not have to file a gift tax return. The exception to this rule is Connecticut – in CT, you must file a gift tax return for amounts above the annual exclusion amount, even if no tax is owed.

The Estate and Gift Tax scheme is complicated, but if managed properly, may offer significant financial benefits in the form of tax savings. Please consult with your attorney or tax advisors to ensure the best results for you and your family.

For assistance with any legal matters related to your business or estate planning, contact Fournier Legal Services at jfournier@jeflegal.com or 860.670.3535 now for a consultation and planning session.