By Barry Zimmer on January 16th, 2020 in Estate Planning
Parameters that are relevant to estate planning are subject to adjustments year by year, and this applies to federal transfer taxes. There is a federal estate tax in the United States, and there is an exclusion that can be used to transfer a certain amount tax-free before the estate tax would become applicable. As we have stated in a recent blog post, the adjusted exclusion figure for 2020 is $11.58 million.
The federal estate tax was initially enacted in 1916, and at that time, people used to simply give gifts to their loved ones to avoid the tax. As a response, legislators were able to pass a gift tax in 1924 to close this loophole, but it was repealed a couple of years later. In 1932, it was reenacted, and the federal gift tax has been around since then.
A provision contained within the Tax Reform Act of 1976 mandated the unification of the gift tax and the estate tax. As a result of this merging, the exclusion is a unified exclusion that applies to large lifetime gifts along with the estate that will be transferred after you pass away.
Annual Gift Tax Exemption
The reason why we used the qualifier “large” when referring to gifts is because there is an additional gift tax exemption. It allows you to transfer a certain amount each year to any number of people before you would have to use some of your unified lifetime exclusion to give the gift in a tax-free manner.
This is another figure that is subject to change when a new year rolls around, but this year, it is going to be the same as it was in 2019. The amount of the 2020 annual gift tax exemption is still $15,000. To be clear, there is no limit to the amount that you can give away tax-free as long as you do not give any one person more than $15,000.
People that are exposed to the estate tax can use this exemption to gain tax efficiency. Though $15,000 may not seem like much when you are talking about someone with more than $11 million, it can add up over time.
For example, let’s say that you are married, and you have four children that are also married. You and your spouse could give a combined $30,000 to each husband and each wife per year tax-free. That’s $60,000 a couple times four for a total of $240,000 worth of annual tax-free transfers.
Additional Gift Tax Exemptions
There are a couple of other types of gifts that you can give without incurring any transfer tax responsibility. You can use the educational exemption to pay school tuition for any number of students tax-free, but this does not extend to books, fees, and living expenses. Of course, you could use your $15,000 per person annual deduction to provide additional support.
The other one is a medical gift tax exemption. If you want to pay medical bills for other people, including premiums for health care insurance, the gift tax would not be a factor.
Attend a Free Seminar
If you would like to obtain a great deal of very valuable information about estate planning, there are some fantastic opportunities coming up in the near future. Our attorneys are holding a series of seminars, and we have dates scheduled at a variety of different locations in the greater Cincinnati area. As a result, you should be able to find a session that is very convenient for you to reach.
Though there is no charge to attend our seminars, we ask that you register in advance so that we can reserve your seat. You can visit our seminar schedule page to see the dates, and when you find the one that works for you, click on it and follow the simple instructions to register.
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