| There are many reasons to make gifts during your | | | | against the $1,000,000 lifetime exclusion. That is, a |
| lifetime. There are personal and tax reasons for | | | | person can give $12,000 per year without any gift tax |
| making lifetime gifts. Despite all of the fancy estate | | | | consequences at all. |
| planning tools available, gift giving is one of the simplest | | | | There is no limit to the number of people that you may |
| and most effective ways to reduce one's estate tax | | | | give $12,000 to without using up your Lifetime |
| liability. Moreover, many people enjoy giving gifts during | | | | Applicable Exclusion. Married persons may give up to |
| their lifetime. Despite the prevalence, many people do | | | | $24,000 to an individual in one calendar year. |
| not understand the gift tax system. | | | | Additionally, a married person may make unlimited gifts |
| The gift tax is a federal tax. The gift tax is paid by the | | | | to their spouse without incurring any gift tax liability. If a |
| person who makes the gift, not by the recipient. The | | | | gift is less than $12,000 in a calendar year there is no |
| receipt of a gift is not a taxable event for income tax | | | | need to file a gift tax return with the Internal Revenue |
| purposes. To understand the federal gift tax system it | | | | Service. Consult your tax advisor if you want to make |
| is important to understand two key exclusions: Lifetime | | | | a gift larger than $12,000 to one person in a calendar |
| Applicable Exclusion and the Annual Exclusion. | | | | year. |
| The Lifetime Applicable Exclusion is an amount of | | | | In another example: Fred has three children. Fred may |
| money that may be given away tax free. An individual | | | | give each child $12,000 per year without any gift tax |
| may give up to $1,000,000 in a lifetime without incurring | | | | liability or using any of the $1,000,000 Lifetime |
| any tax liability. If the Lifetime Applicable Exclusion is | | | | Applicable Exclusion. However, if Fred's gift to each |
| exceeded, the gift tax rate ranges between 41 | | | | child increased to $15,000 in one calendar year, the |
| percent to 46 percent. | | | | amount of the gift in excess of the $12,000 ($3,000 for |
| For example, Fred has made $1,100,000 worth of gifts | | | | each child) would count against the Lifetime Applicable |
| during his lifetime. Fred's first $1,000,000 will be | | | | Exclusion. Fred would have used $9,000 of the |
| excluded from gift tax by the Lifetime Applicable | | | | Lifetime Applicable Exclusion and would be required to |
| Exclusion. The remaining $100,000 will be taxed at a | | | | file a gift tax return with the Internal Revenue service. |
| rate of 41 percent. Fred would be subject to | | | | Therefore, it is generally wise, unless advised |
| approximately $41,000 in gift tax. Fortunately, most | | | | differently by your tax advisor, to limit your lifetime gifts |
| people do not have to worry about exceeding the | | | | to an amount less than $12,000 (or $24,000 for married |
| Lifetime Exclusion Amount. | | | | couples) per year to any one individual. |
| The second key concept to the gift tax, and perhaps | | | | Making a lifetime gift makes sense for many reasons |
| the more important concept, is the Annual Gift Tax | | | | both personal and fiscal. Understanding the basics of |
| Exclusion. The Annual Gift Tax Exclusion allows a | | | | the federal gift tax system can make the process a |
| person to make a $12,000 gift to an individual. As long | | | | little easier. If you are considering making a large gift be |
| as a gift to one person is equal to or less than $12,000 | | | | sure to consult your tax advisor. There is no substitute |
| in one calendar year, no amount will be counted | | | | for individually tailored tax advice. |