For those who are eager to give away money while they are alive and well, you’ll be happy to hear that new gift tax exemption numbers for 2015 have been released by the federal government. For those eager to receive money, you’ll be thrilled to hear that the limits have gone up to account for inflation. To find out more about giving money away and the impact that these gifts can have on estate planning, keep reading.
What’s the gift tax exemption?
One of the important new numbers released this past week concerns the gift tax exemption. So what is a gift tax exemption? This refers to the cumulative total that any one person can give away during his or her lifetime without owing federal gift tax. Who does the money go to? Whoever you want. Friends, family members, strangers, really anyone you feel is worthy.
In 2015, those with boatloads of cash will be able to give away up to $5.43 million without having to pay taxes on the gifts. The news gets even better for married couples who can give away up to $10.86 million ($5.43 million each). Not only can you double up your gifts, but according to a recently passed law, the gift tax exemption is even portable. This means that a surviving spouse is given the opportunity to use any used portion of the gift tax exemption left by the other spouse.
Annual gift tax exclusion
Beyond the cumulative gift tax exemption, it is nice to know that there is another way for those with means to give away their money and avoid taxes.
According to a nice tax loophole, you can give away $14,000 per individual per year and not trigger any gift tax penalties. Amazingly, any gifts of $14,000 or less do not count towards your total $5.43 million total exemption. This can be incredibly helpful to those with large estates, because the annual gifts are a tax free way of chipping away at your potential future tax burden. For example, if you and your spouse each gave the maximum $14,000 to two children, their two spouses and four grandchildren, you could knock $224,000 a year off your total estate without ever incurring a gift tax.
What happens if you have to pay the gift tax?
Let’s be clear that it takes a lot to get to the level of having to pay the gift tax. Not only will you need to personally give away more than $5.43 million, but you would also only need to worry about paying tax on gifts greater than $14,000. According to the 2012 American Taxpayer Relief Act, the tax rate on estates that exceed the gift tax exemption is 40 percent. That means any gift beyond the $5.43 million threshold that is greater than $14,000, will be taxed at 40 percent. That kind of money can add up fast for those in the financial position to face such problems.
Will this impact you?
The bottom line is that while the gift tax provision can be important for some families, only a very, very small group ought to spend time worrying about such things. Unless you and your spouse plan on giving away more than $10 million, you’ll never need to worry about paying gift taxes and can rest easy.
An experienced Minnesota estate planning lawyer can help walk you through the complicated process of establishing a workable estate plan. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.
Source: “Three Things You Need To Know About Estate Planning,” by Bill Bischoff, published at WSJ.com.
Can I say that this is ONLY true, if you DON’T have a mom in the nursing home with a dad who is trying to get help paying for mom’s nursing home care. He found out that he is NOT allowed to give any gifts including for Birthdays. The government is evil greedy bleeps. He was also told that they ONLY count HER Money towards figuring out financial need. This was a lie by an evil person who did not even bother to get the facts straight! I think the person was taught to tell the lie, in order to save the government lots of money. However, my dad could divorce my mom and save him a lot of headache and force mom’s finances to be not his worry anymore. I told him this ages ago, but he wasn’t listening to that either. Don’t blame him. I am hoping my dad gets a lawyer. He says that he finally will, and has someone lined up. I still want to move to England, but can’t. I am very upset about this! Nothing I wanted out of life did I get because of my evil piece of crap mother! I hate her! I want her dead from natural causes NOW! I hate her! She destroyed my life and wanted to be sure I got a bad life and never got a life because she worshipped her fear and her ptsd! I went to therapy to get over this and still, it haunts me every day of my life! Yes, she will be in Heaven, as I prayed for that. God knows why I hate her and yet want her in heaven anyway, forgiven. I was hoping to be able to sell the home I owned and use it to buy a house in England someday. Hopefully, I can focus and get that book written AND successful. I’ll be self-publishing because I won’t be able to do anything else. I can’t handle thousands of rejects rejecting me or stealing my work. J K Rowling was told off for being a female! She made billions. I still am disabled. I’ll do things the “free way”, but if God is in this, I’ll be successful. Ha! I failed at everything I tried in life except graduating from College the 2nd time. I hate schizo-affective disorder. I hate PTSD. I hate having a brain that randomly shows up. I had a professor who discovered it. I was trying to over-achieve to get ahead. Oh well. Bye! I’m leaving your site now. Thanks!
I live in Minnesota- was wondering if I could give my kids each $5,000 on their birthdays…..Do they have to give that back if I have to go to a nursing home?
As long as you are not currently on federal or state-funded benefits of some kind, you can give as much money to your grand kids as you would like. You should be aware that there is a limit on tax deductible gifting in a calendar year, though.
We are having a benefit for my dad who has stage 4 cancer. Does he have to claim any of this as income