In very brief overview, the way transfer taxes work is as follows.
You get to transfer free of gift or estate tax an exemption amount that is currently $650,000 and is scheduled to go up to $1,000,000 over the next several years. When you make a gift over $10,000 you are using up part of your exemption amount. If you expect to leave an estate that's less than the exemption amount, it costs you nothing to make a gift over $10,000, except the need to file a gift tax return reporting the gift (but showing zero tax). Even if you expect your estate to be greater than the exemption amount, it's often good estate planning to make gifts that use up the exemption amount during your lifetime, because the assets tend to grow and it's better to have the grow outside your estate. And for very large estates, it may even be beneficial to pay some gift tax during your lifetime. But that's a matter that should be discussed with an estate planner. Meanwhile, you don't actually pay gift tax unless you make lifetime gifts greater than the exemption amount — not counting gifts that fall under the $10,000 annual exclusion.
Kaye Thomas, author
Fairmark Press Tax Guide for Investors
fairmark.com |
