COREVALUATION​

Gifting Opportunities: Understanding How to Plan Ahead

​Gifting can be a powerful tool for financial planning, but it's important to understand the rules. Here's a breakdown of key gifting strategies and tax considerations.

What is the Gift Tax?

The gift tax is a federal tax that applies when you transfer property to another person without receiving fair market value in return. The IRS considers it a gift if the transfer meets specific criteria, regardless of how you or the recipient perceive it. If a transfer qualifies as a gift, you may be required to file a gift tax return and potentially pay gift tax. Navigating gift taxes involves understanding several important allowances that can help you reduce your taxable estate.

Lifetime Federal Exemption Amount

The amount you can transfer free of federal estate, gift, and generation-skipping taxes — known as the federal exemption amount — has significantly increased. For 2024, this exemption is $13.61 million per individual. This means a single person can gift or leave up to $13.61 million over their lifetime without incurring federal estate or gift tax. For married couples, this combined exemption rises to $27.22 million. Given the likelihood of future estate tax reforms, it's wise to be aware of these generous limits.

Annual Gifts Exclusion 

You can also give a certain amount each year to as many people as you wish without incurring gift taxes or reducing your lifetime exemption. This is called the annual gift exclusion. For 2024, this amount is $18,000 per recipient.  This means you can gift up to $18,000 to one person, or $18,000 to multiple people, each year.  Married couples can combine their annual exclusions to gift up to $36,000 per recipient per year without impacting their combined lifetime exemption.he annual exclusion from gift tax --  the amount that may be gifted annually to individuals without incurring any taxes) increased from $17,000 in 2023 to $18,000 per recipient for 2024; married couples may  gift up to $36,000 per year per recipient without triggering any reduction of their combined lifetime federal exemption amount.

529 College Savings Account

A popular strategy for educational funding involves 529 College Savings Accounts. You can "front-load" a 529 account by contributing up to five years of the annual gift exclusion all at once, without using any of your lifetime exemption.

A single person could contribute $90,000 ($18,000 x 5 years) to a 529 account for a child or grandchild.
A married couple could contribute $180,000 ($36,000 x 5 years).

Additionally, you can directly pay for someone's qualified college and medical expenses to the institution or provider without it counting against your annual exclusion or lifetime exemption. This allows you to still make the regular $18,000 annual exclusion gift directly to the individual in the same year.

Large gifts

With the current high federal exemption amount, now might be an opportune time to consider making large taxable gifts. The IRS has confirmed that if you make sizeable gifts while the exemption is high, and the exemption amount is later reduced, those gifts will be "grandfathered" in, meaning they won't be subject to tax retroactively.

It's important to note that without Congressional action, the current high exemption levels are scheduled to revert after 2025 to approximately $5.49 million (adjusted for inflation). Taking advantage of the current exemption levels before they potentially "sunset" is a key consideration for many

Plan for Your Future

Utilizing these simple gifting techniques over time can significantly reduce the size of your estate, ultimately lowering potential future estate tax exposure. Understanding and leveraging the opportunities available under current tax rules is a fundamental step in smart financial planning.

We encourage you to review your current estate plan and consult with professional advisors to explore the best strategies for reducing or eliminating your tax exposure.

For more information on gifting strategies or to find the right professional advice, please contact us. We're here to help you navigate these important decisions..