What Is the Annual Gift Exclusion?
Before we provide you with more information, let’s review estate taxes. The government imposes a tax on individuals at death when assets are transferred to heirs, known as estate tax. However, the total value of the estate needs to exceed certain levels (exemption level) for the tax to be applied. As wealthy individuals age, a major financial objective is to reduce their estate enough that it is below the exemption level, thus avoiding the feared estate tax. Therefore, the most common way individuals remove assets from their estate is by gifting them to family and friends, often the people that will ultimately receive their assets at death anyways.
Annual Gift Exclusion
For 2014, that limit is $14,000 ($28,000 for married couples). Although you can transfer $14,000 to as many people as you wish, you can only transfer $14,000 to each without incurring a gift tax. Gift tax is imposed on assets that are gifted to others, exceeding the annual exclusion. A gift tax return must be filed in the year in which a gift to a specific individual exceeded the limit. At death, all of these “taxable gifts” are added back to your estate, which may cause your estate to exceed the exemption amount, leading to an estate tax liability.
Estate Planning with Geier Asset Management
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