In an estate plan, establishing a trust is commonly preferred over establishing a will for the sake of curbing certain taxes. Of note, this may include avoiding federal gift taxes on your estate. Continue reading to learn more about the gift tax limit and how an experienced Putnam County trusts attorney at The Law Office of Andres D. Gil, PLLC can help you maximize the benefits of your gifting.
By definition, what are the annual and lifetime gift tax exclusions?
For one, the annual gift tax exclusion is the amount of money or property you are allowed to transfer into your irrevocable trust each year before you must file a federal gift tax return (i.e., Form 709) with the Internal Revenue Service (IRS). In 2023, this limit was set at $17,000. But as of 2024, this limit has been raised to $18,000.
It is worth mentioning that reporting your gift with the IRS does not necessarily mean that you are subject to such taxes. At the same time, the individual receiving your gift does not need to report it to the IRS. Rather, you may only trigger such taxes if you exceed the lifetime gift tax exclusion.
That said, the lifetime gift tax exclusion is the amount of money or property you are allowed to transfer into your irrevocable trust in total before you must pay a gift tax. In 2023, this limit was set at $12.92 million. But as of 2024, this limit has been raised to $13.61 million. Depending on the amount you have excessively gifted, the tax rate may range anywhere from 18 percent to 40 percent.
What is important to know about the gift tax limit?
Federal laws surrounding the gift tax limit may be more complex than you initially realize. Without further ado, you must understand the following concepts before initiating any gifting activities:
- The annual gift tax limit is per recipient: for example, you may gift $18,000 to an irrevocable trust designated for your child in addition to $18,000 for your grandchild, etc.
- The annual gift tax limit is per giver: for example, if you are married, you and your spouse may gift up to $36,000 per year, per recipient.
- The annual gift tax limit is not applied to gift exchanges between you and your spouse: however, the only exception is if your spouse is not a United States citizen.
- The annual gift tax limit is not applied to charitable donations: rather, these gifts may be related to your charitable trusts.
This is not to mention the estate taxes that are imposed under New York State law. Without a doubt, your next step should be to employ a skilled Putnam County estate planning attorney. So please reach out to us at The Law Offices of Andres, D. Gil, PLLC immediately.