When evaluating the situation for Ann and Bob to reduce their taxable
estate there are a few alternatives. Assuming their investments are
worth $3,000,000 and the ranch valued at $100,000,000 would be a
total of $103,000,000. The Tax Cuts and Jobs Act of 2017 (TCJA)
increased the tax-free amount (known as the basic exclusion amount) to
$11.18 million beginning in 2018. This increased amount, indexed
annually, will continue through 2025 (Anderson, Hulse & Rupert
2023). The 2019 amount is $11.4 million, the 2020 amount is $11.58
million, the 2021 amount is $11.7 million and the 2022 amount is
$12.06 million (Anderson, Hulse & Rupert 2023). This means in 2022
Ann and Bob can gift $12.06 million each that is tax free.
On assumption would be to gift their ranch in Texas to every member
which there are 22. The limit for each gift usually changes each year,
but in 2021 it is $15,000 (AICPA 2021). Spouses can elect to give up to
$30,000 to one person (AICPA 2021). There are 22 family members
which means that Ann and Bob can give each person $30,000 in 2021.
This would result in $660,000 of tax-free gifts to all the children and
grandchildren and reduce their estate tax. If they gift each child and
grandchild $1,000,000, they would have to pay tax on the difference of
both exclusions if applicable and the 1 million. Generally, they would
be taxed on $970,000 per person if the exclusion of $12.06 million has
been used.
Since Ann and Bob have 15 grandchildren they can if they are trying to
the can take their $1,000,000 gift to each grandchild and help them with
school or medical bills which is a qualified transfers exclusion. In
addition… you can also provide an unlimited amount for qualified
tuition or medical expenses to an individual (AICPA 2021). You must
pay the amount directly to the education or medical care provider
(AICPA 2021). I thought you were able to also donate money to 529
college plans for young children. This could be a way to give money out
without having to pay additional taxes.
The consequences of large estates are that if not properly planned the
estate could end up owing a lot of taxes.
References:
Anderson, Kenneth E., Hulse, David S., Rupert, Timothy J. (2023).
Pearson’s Federal Taxation 2023 Corporations, Partnerships, Estates
and Trusts. Pearson Education Inc. Hoboken, NJ.
AICPA (March 29, 2021). Gift Tax Strategies. 360 Degrees of
Financial Literacy. American Institute of CPAS.
https://www.360financialliteracy.org/Topics/Working-with-a-
CPA/Credits-Deductions/Gift-Tax-Strategies
