Ann and Bob have several options to consider in order to reduce
their taxable estate consequence. Annually, the amount of gift and
estate taxes that are exempt are adjusted to account for inflation.
“The amount you can give during your lifetime, or at your death, and
be exempt from federal estate and gift taxes has risen from
$12,060,000 to $12,920,000” for 2023 (Erskine, 2022). When you
consider this, Ann and Bob as a married couple, could potentially gift
$25,840,000 in assets tax free in 2023. Ann and Bob do have a large
family. When considering their children and grandchildren (22
members), it is very feasible that they could gift investments work
$1,000,000 each (totaling $22,000,000) with no tax implications.
Certainly, because the annual gifting limits are much smaller than the
lifetime amounts, gift tax returns would need to be filed should they
gift the $1,000,000 to each family member in one year. Certainly,
staying under the annual amount of $17,000 (each) and spreading
the gifts out would be ideal as no gift tax return would need to be
completed (Wilda Lin, 2021).
There are a few instances that gift tax limits don’t apply. Gifts
designated for medical expenses paid directly to a medical institution
or insurance company qualify for an exception to gift tax limits (n.d.).
Similarly, gifts can be paid directly to education institutions and gift
tax limits also would not apply if the money was used for tuition
(n.d.). The IRS website also state that gifts to spouses and to political
organization for their use can be excluded from gifts (n.d.).
“Gifting appreciated assets, such as stocks or real estate, can be an
effective way to avoid paying the gift tax” (2023). Gift tax is based
on fair market value at the time of the gift instead of basis or original
purchase price.
So, what would happen if Ann and Bob left a large estate to be
divided among their children and grandchildren? If the gift tax
exclusion has been exhausted “the gift tax rate starts at 18% and can
reach up to 40% depending on your gift value” (Yusuf, 2023). Based
on the asset numbers known, the estate could fall in the highest 40%
tax rate category. Certainly, with the value of their assets there
could be tax implications that could be avoided if they did not leave a
large estate to be divided.
References:
Erskine, M. (2022, November 7). IRS announces estate and gift tax
exemption amounts for 2023. Forbes. Retrieved March 2, 2023, from
https://www.forbes.com/sites/matthewerskine/2022/11/04/irs-
announces-estate-and-gift-tax-exemption-amounts-for-
2023/?sh=cff9ab828172
Frequently asked questions on gift taxes. Internal Revenue Service.
(n.d.). Retrieved March 2, 2023, from
https://www.irs.gov/businesses/small-businesses-self-
employed/frequently-asked-questions-on-gift-taxes
Trust & Will. (2023, January 27). Gift tax: 5 tips to avoid paying tax on
gifts [updated 2023]. Trust & Will. Retrieved March 2, 2023, from
https://trustandwill.com/learn/gift-tax
Wilda Lin, J. D. (2021, August 3). Basic tax reporting for decedents and
Estates. The CPA Journal. Retrieved March 2, 2023, from
https://www.cpajournal.com/2021/08/03/basic-tax-reporting-for-
decedents-and-estates/
Yusuf, F. (2023, February 20). Your guide to gift tax rates in 2023.
Line. Retrieved March 2, 2023, from https://useline.com/blog/your-
guide-to-gift-tax-rates-in-2023/
