Bob and Ann could each start by gifting their 22 children and
grandchildren $16,000 per year, for a total of $32,000 per year, per
person. Section 2513 states that each spouse may elect gift splitting,
which treats gifts to third parties as if one-half of the gift was made
by each spouse (Anderson et al., 2023). The $32,000 falls under the
annual taxable gift threshold for the donee. Another option would be
making charitable contributions.
Leaving the entire estate to their children and grandchildren in their
will would mean the entire amount of the estate is taxed. Some of the
cash from their investments could have been gifted tax free to their
family members if they had started before their death.
Gift taxes is something not many people think about when they gift a
loved one or someone a gift. In this case Ann and Bob have a lot to
think about when it comes to gifting their children and grandchildren.
The main questions that arises is "would we need to pay taxes on
gifting our loved ones?" "How should we go about gifting them?"
What is the best more beneficial way to gift the ones we love?" These
are all questions that are possibly going through Ana and Bob's heads
at the moment. There are gift tax rates at which the amount of the
gift is taxed. Right now "the gift tax rates range from 18% to 40%, and
the giver generally pays the tax" (Parys & Orem 2023 p 3). In the
event that Ana and Bob wish to gift their children and grandchild they
would have to pay taxes on each gift given.
There are also some alternatives that they can review in order to
reduce the taxable estate. According to Amanda Dixon in the article,
5 Ways the Rich Can Avoid the Estate Tax, the 5 ways Ana and Bob can
avoid the estate taxes are:
1. Give gifts to family
2. Set up an irrevocable life insurance trust
3. Make charitable donations
4. Establish a family limited partnership
5. Fund a qualified personal residence trust
These are all ways they could potentially gift their loved ones and
avoid the taxable estate taxes. Just gifting the family does also come
with some restrictions and the value they are allowed prior to paying
the gift taxes. "For 2023, you can give any one person up to $17,000
tax-free (or up to $34,000 if you’re married and you’re filing joint tax
returns). Over the course of your lifetime, you can give out up to
$12.92 million (for 2023) of your wealth as gifts before getting hit
with the gift tax" (Dixon 2023 p7). Therefore, there is so much in
gives that they would be able to give them until they are hit with the
gift taxes. In the event they decided to gift each one of their children
and grandchildren they would have to follow the above tax rules
before the gift taxes apply.
In the event they wait to leave the estate to the family members the
the estate taxes would apply and each of them would have to pay a
large chunk of taxes.
References
Dixon, A. (2023, February 15). 5 ways the rich can avoid the estate tax.
smartasset.com. Retrieved March 2, 2023, from
https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-estate-
tax
Orem, T., & Parys, S. (2023, February 10). Gift tax: How it works, who
pays and rates. NerdWallet. Retrieved March 1, 2023, from
https://www.nerdwallet.com/article/taxes/gift-tax-rate
Anderson, Kenneth, et al., editors. Pearson’s Federal Taxation 2023
Corporations, Partnerships, Estates & Trusts. Pearson Education, Inc,
2023.
