It almost seems counter-intuitive, but giving gifts can be a positive contribution to many estate plans. In Florida as well as elsewhere, estate tax planning and other objectives can be served by gift-giving. This is first of all a tool that can be appropriately used to transfer assets out of a person’s estate while he or she is living. That will generally serve the purpose of lessening federal estate taxes, along with possible state inheritance taxes and administrative fees at death.
This works even better when the asset is expected to increase considerably over a period of years that it raises the potential for a possible federal estate tax or state assessments at death. Furthermore, gifting during life allows the transferring assets to family members who are in lower tax brackets. Also, it allows the person to have the satisfaction of seeing loved beneficiaries obtain and enjoy their gifts.
The annual gift exclusion for an individual in 2013 is $14,000. For a married couple, a gift to a person can be excluded from gift taxes up to $28,000. This means that no gift tax return is required for amounts gifted that are below those thresholds.
What is critical to understand about the federal gift tax framework is that a gift in excess of $14,000, or $28,000 for a couple, simply means that you must file a return. Anything gifted above the exclusion is then deducted from the lifetime gift tax exemption of $5.25 million. If you never exceed that limit you’ll never have to pay a gift tax. However, there are a few kinds of gifts, such as for medical care or education, that will not apply against the lifetime exemption.
In Florida and nationwide, when a federal gift tax is payable, it’s paid by the donor and not the recipient. In discussing these issues of estate tax planning with your planning professional, you’ll also be informed whether there are any estate taxes or similar charges imposed by your state. One common restriction in some states is that a gift made too close to the date of death may be subject to a state inheritance tax. Finally, it’s recommended that estate planning also take into account what you need for living expenses and financial needs, and not engage in over-gifting which can create burdens for you down the line.