Ann and Bob should give priority to the annual exclusion gift amount which will be
$17,000 for 2023 ((Frequently Asked Questions on Gift Taxes | Internal Revenue Service,
2009). This means Bob and Ann can EACH gift $17,000 to each child and grandchild
without worrying about paying gift tax. Each year that will be $748,000 ((17,000x2)x 22)
that will reduce their estate and estate tax and they could potentially have many years to
make these gifts. They can also pay tuition or medical expenses for their kids and
grandkids. As long as the payment is made directly to the institution, these expenses do
not qualify as gifts and will not be taxed as such and their taxable estate will decrease.
If Ann and Bob decide to gift one million dollars to each of their kids and grandchildren,
they will be taxed on the amount over the annual exclusion ($17,000 in 2023) and lifetime
exclusion ($12.92 million in 2023). If they have not made any prior year gifts that go
toward their lifetime exclusion amount, they still might avoid paying any gift tax ((2020
Gift Tax Rates | What Are They? | Who Pays?, n.d.).
If Ann and Bob decide to leave their entire estate to children and grandchildren after their
death, their gross estate will be taxed. They will miss out on any tax savings they could
have had if they had gifted portions to their descendants.
References
Frequently Asked Questions on Gift Taxes | Internal Revenue Service. (2009). Irs.gov.
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-
questions-on-gift-taxes
2020 Gift Tax Rates | What Are They? | Who Pays? (n.d.). NerdWallet.
https://www.nerdwallet.com/article/taxes/gift-tax-rate
