Each year, the IRS announces how much the estate and gift tax exemptions will be for the following year. Recently, the announcement was made that the estate tax exemption will rise to $5.43 million per person, and the annual gift tax exemption remains at $14,000 for 2015. The $90,000 increase could allow a New Jersey resident to do more gifting during his or her lifetime.
This is because the amount of every gift needs to be deducted from the total amount of the exemption. For instance, if a person has not made any gifts up to this point, he or she could give away up to $5.43 million next year, and no taxes would be due for the one making the gift. A married couple can combine each party’s exemption and give away up to $10.86 million.
However, that is not all that can be given. Each year, an individual is allowed to make gifts to as many people as he or she would like of up to $14,000 per person. A recipient could receive up to $28,000 per year if a husband and wife each give one individual a gift. These amounts are separate from those that can be given under the estate tax exemption.
Many people decide to provide a gift in such a way that it does not count toward the annual gift tax exclusion. Paying the tuition, medical or dental expenses of a family member or friend directly does not count. Another way to pay for tuition ahead of time is to provide five years of annual gifts all at once to a 529 college plan — which would be $70,000 at the present value of the exemption. However, a gift tax return would need to filed, and no other gifts could be given over that five-year period to the recipient of the 529 college plan in order to avoid paying taxes.
These are just some examples of how a New Jersey resident could both help family members and reduce the taxable amount of an estate at the same time. Using the estate tax and gift tax exemptions in the most advantageous way possible takes careful planning. It would be beneficial for anyone wanting to get the most out of the exemptions to consult with someone familiar with estate and tax planning.
Source: Forbes, “IRS Announces 2015 Estate And Gift Tax Limits“, Ashlea Ebeling, Oct. 30, 2014