It’s getting close to the end of the year and now’s the time to finalize any tax-exempt gifting. As a reminder, gifts to any individual up to $18,000 is tax-exempt and does not have to be reported. Gifts above $18,000 does have to be reported to the IRS but may still be tax-exempt if you are under the current lifetime threshold for gift-giving.
What is the current lifetime threshold?
The Tax Cuts and Jobs Act of 2017 more than doubled the maximum that families can give their beneficiaries — either during their lifetime or as part of their estate — without incurring federal gift or estate taxes. As a result, for 2024, a single taxpayer can claim a federal estate and lifetime gift tax exemption of $13.61 million. Couples making joint gifts can double that amount.[1]
When does the lifetime threshold change and will I be adversely impacted when it drops?
The current exemption threshold is in effect until the end of 2025, unless it is renewed. If it is not renewed, the threshold will drop from approximately $13 million to $7 million. For those that are above $7 million when the legislation sunsets, do not worry. The IRS formally confirmed that those who took advantage of the higher threshold will not be adversely impacted. The regulations created a special rule that allows the estate to compute its estate tax credit using the greater of (1) the basic exclusion amount (BEA) applicable to gifts made during life, or (2) the BEA applicable on the date of death.[2]
What’s the best way to gift these amounts?
There are many ways to gift, including direct cash, securities, and other assets. These gifts can be given during your lifetime or be put in an irrevocable trust. Weed Law Group’s principal attorney is a tax specialist, as certified by The California State Bar Association’s Board of Legal Specialization, and she can help you with creating or amending a trust, as well as advise on any gift-giving or tax questions.
[1] https://www.ml.com/articles/estate-gift-tax-exemption-sunset.html
[2] https://www.irs.gov/newsroom/estate-and-gift-tax-faqs