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Under current law, the annual gift tax exclusion is $15,000 per donor per recipient. This means an individual can make as many gifts of $15,000 to as many people as he or she chooses, free of taxes for the recipients. Annual gifts don’t reduce the lifetime exemption for federal estate tax and gift tax for individuals. Currently, the lifetime exemption is $11.7 million per individual and $23.4 million per couple. Most estates are significantly less than those amounts and will not be subject to estate or gift taxes. However, there’s a good deal of concern that Congress may reduce the lifetime exemption. If Congress does nothing to the current law, the exemption will return to approximately $6 million per donor in 2026.
Given the possibility of a lower lifetime estate and gift tax exemption, individuals and couples may want to consider annual gifting as a way to reduce the size of their estates to reduce or eliminate estate tax at the time of their death. Obviously, $15,000 or even $30,000 isn’t going to make a significant impact on the lifetime amounts, but there may be relatively easy ways to go bigger. Here’s an example: A married couple with three married children and four grandchildren could give away $300,000 per year by each parent gifting $15,000 to each child, their spouses and each grandchild. And, they could repeat these gifts annually. In addition, gifts to pay tuition are tax free if they’re made directly to the institution.
If you think annual gifting might make sense for you, contact an Ann Arbor estate planning attorney at PSED for more information.
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