Approach Year-End Giving with the Following in Mind

Approach Year-End Giving with the Following in Mind

As we approach the end of the year, I often get renewed questions from individuals asking about the rules concerning gifts, taxes and related matters. The following are some important factors to keep in mind as you consider making gifts to family members, charities and other beneficiaries: 

  • Overall, an individual has an estate and gift tax credit of $5.43 million. That means that, in addition to annual exclusion gifts which will be explained below, an individual can give away $5.43 million in assets during his/her lifetime without paying any gift tax. 
  • Each individual (donor) may make annual gifts $14,000 per calendar year per beneficiary (donee) without the imposition of federal gift tax. This right to gift is referred to as the “annual exclusion gift.” This gift is adjusted annually for inflation, but for purposes of 2015, the $14,000 per year per person applies. It is important to note that a husband and wife can each give $14,000 per year per person to a beneficiary. 
  • If annual gifts with a single donee exceeds $14,000, the gift tax annual exclusion covers the first $14,000 and only the excess is taxable. However, rather than having to pay tax on the excess, taxable gifts reduce the donor’s applicable exclusion amount dollar for dollar. Each person has an applicable exclusion amount sufficient to allow him or her as stated above to gift up to $5.4 million tax-free during his/her lifetime. Taxable gifts made during a donor’s lifetime reduce the donor’s applicable exclusion amount available at death. The donor doesn’t actually pay tax until the accumulative value of the gifts made during his/her lifetime (other than annual exclusion gifts) exceed the $5.4 million credit amount. 
  • Gifts are received income-tax-free by the donee no matter the amount. 
  • Gifts to charities are unlimited. 
  • In addition to the $14,000 annual gift tax exclusion, there is an unlimited gift tax exclusion for direct payments of the donee’s medical expenses or tuition for education. Room and board, supplies, books and other fees do not qualify for this additional exemption. The donor and donee may be unrelated to qualify either for the unlimited medical or educational exclusions. To qualify, payment must be made directly to the school, doctor or hospital that provides the service. A payment to the donee will not qualify for the exclusion.