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If Ann and Bob were to gift the investments of $1,000,000 to each of their children and grandchildren,
they would all be subject to the gift tax. Under the IRS gift tax, a tax is placed “on the transfer of
property by one individual to another while receiving nothing, or less than full value, in return. The tax
applies whether or not the donor intends the transfer to be a gift” (IRS, n.d.). However, this gift tax
would only apply while Ann and Bob are still living. If they were to set it up so that this amount was
gifted to each child and grandchild after they pass away, an estate tax would apply. Each of these can
range anywhere from 18% - 40%; although, the recipient is not taxed, rather, the person who is gifting
will incur the tax. Based on the current rates, Bob and Ann’s total assets would be taxed at 40% - that
comes out to taxes owed of “$345,800 plus 40% of the amount over $1,000,000” (Reynolds, 2022).
There are, however, a few options to reduce this taxable estate. There are annual exclusion rates if Ann
and Bob were to gift smaller amounts over a long period of time, ultimately reaching the $1,000,000
per family member. The annual exclusion rates are as follows:
This means that, in the current year, they would be allowed to gift $17,000 per family member, tax-
free. Another option, under IRC Section 2503, a taxable gift is defined as the total amount of gifts
made throughout the calendar year, excluding some deductions. “In the case of gifts (other than gifts
of future interests in property) made to any person by the donor during the calendar year, the first
$10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total
amount of gifts made during such year.” Additionally, “In the case of gifts made in a calendar year
after 1998, the $10,000 amount contained in paragraph (1) shall be increased by an amount equal to -
(A) $10,000, multiplied by (B) the cost-of-living adjustment determined under section 1 (f)(3) for
such calendar year by substituting “calendar year 1997” for “calendar year 1992” in subparagraph (B)
thereof. If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such
amount shall be rounded to the next lowest multiple of $1,000” (LandCAN, n.d.).
- Shelby
Gift tax. Internal Revenue Service. (n.d.). Retrieved March 2, 2023, from
https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax
LandCAN. (n.d.). IRC section 2503 - taxable gifts. Land Conservation Assistance Network. Retrieved
March 2, 2023, from https://www.landcan.org/article/IRC-Section-2503-Taxable-Gifts/745
Reynolds, P. (2022, December 28). Estate taxes: Who pays? and how much? Investopedia. Retrieved
March 2, 2023, from https://www.investopedia.com/articles/personal-finance/120715/estate-taxes-
who-pays-what-and-how-much.asp
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