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.
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 if you need to file a gift tax return, if you need to pay a gift tax, and how your lifetime gift will impact your loved ones and your estate’s future tax obligations.
At Romano & Sumner, our Sugar Land gift tax 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, our estate tax lawyers can help you devise a gift-giving strategy that helps preserve as much of your wealth as possible.
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. For more information on your specific scenario, contact our Sugar Land estate and gift tax attorneys for advice.
Currently, there is an annual exclusion of $14,000 per individual and $28,000 per married couple for gifts given to anyone 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.
There are certain categories of gifts that are considered non-taxable and do not reduce your lifetime exemption. These include:
If you need advice on whether your gift is non-taxable, contact our gift tax attorneys today for a personalized answer.
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 gift tax 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.
To discuss your gifting strategy in confidence, please contact us for an initial consultation. You can call the gift tax lawyers at our Sugar Land law offices, or send us your contact information and we will be in touch as soon as possible.
Romano & Sumner, PLLC