If you are considering making a substantial gift to a family member or someone else, it is important to understand how your lifetime gifts can impact your family’s and your estate’s potential tax liability. We have over 20 years’ experience advising clients on estate and gift tax matters.
Experienced Tax and Estate Planning Attorneys Serving High-Net-Worth Individuals in the Sugar Land and Houston Areas
Whether out of altruism or a desire to avoid estate tax liability, it is not unusual for many high-net-worth individuals to make substantial gifts during their lifetime. While both of these are sound reasons to make lifetime gifts, it is important not to overlook the potential implications of the federal gift tax when sharing your wealth with loved ones and friends.
The gift tax is among the least well-known and most commonly misunderstood federal taxes that apply to individuals. While most people will never have to worry about gift tax liability due to the high lifetime exemption, if you are preparing to make a substantial gift or are in the process of planning your estate, it is important to understand (i) whether you need to file a gift tax return, (ii) whether you need to pay a gift tax, and (iii) how your lifetime gift will impact your loved one’s and your estate’s future tax obligations.
At Romano & Sumner, our attorneys have decades of combined experience representing clients in a wide range of tax-related matters. Whether you have already been making substantial gifts for years or you are considering giving away a substantial portion of your wealth and want to plan ahead, we can help you develop a gift-giving plan that minimizes your family’s overall tax liability. In addition to potential gift tax liability, lifetime gift-giving has potential income and estate tax implications for the recipients of your wealth as well. With our breadth of knowledge in both tax law and estate planning, we can help you devise a gift-giving strategy that helps preserve as much of your wealth as possible.
Federal Gift Tax FAQs
Q: Will the people to whom I give gifts have to pay tax upon receipt of their gift?
Generally speaking, no. Under the Internal Revenue Code, it is the gift-giver (the “donor”) who is liable for any gift tax that is owed. The recipient (the “donee”) may agree to pay the tax under certain circumstances, but this is an arrangement that requires careful planning in light of current federal tax laws and regulations.
However, a donee of a lifetime gift could potentially end up owing substantial income tax when he or she disposes of the gifted asset in the future. Unlike gifts upon death, lifetime gifts do not receive a stepped-up tax basis. Your donees will receive your current basis in your gifted assets, and they will owe income tax on any appreciation at the time of sale.
Q: What are the current exclusions and exemptions for lifetime gifts?
Currently, there is an annual exclusion of $14,000 per individual and $28,000 per married couple for gifts given to any one donee. If no donee receives a gift in excess of the applicable exclusion amount in any given year, then the gift tax does not come into play.
Separate from the annual exclusion is the lifetime exemption. For 2017, the lifetime gift exemption is $5.49 million for individuals and $10.98 million for married couples. Any gifts you give that exceed the annual exclusion will reduce your lifetime exemption – and if you use up your full exemption you will begin to incur gift tax liability on your lifetime gifts.
Q: Are there any gifts that are entirely excluded from the gift tax?
Yes. There are certain categories of gifts that are considered non-taxable and do not reduce your lifetime exemption. These include:
- Gifts to pay medical or educational expenses
- Gifts to political organizations
- Gifts to qualifying charities
- Gifts to our spouse
Q: When do you need to file a gift tax return?
As a general rule, you must file a gift tax return whenever your annual gifts to one individual exceed $14,000 (or $28,000 for married couples). This is true even if you do not owe any gift tax. Our attorneys can help you determine if a filing is necessary, and we can help you document your gift (i.e. using a gifting memorandum) to support your tax status in the event of an IRS audit or inquiry.
Schedule a Consultation at Romano & Sumner in Sugar Land, TX
To discuss your gifting strategy in confidence, please contact us for an initial consultation. You can call our Sugar Land, TX law offices at (281) 242-0995, or send us your contact information and we will be in touch as soon as possible.
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