The gift exclusion is one of the most important parts of the tax code for estate planners but can be poorly understood by the general public. Many people know that a person may make up to $14,000 per year ($28,000 for married couples although paperwork does come into play) in gifts to as many people as they like without having to file any documentation with the IRS. The tricky part, that is often overlooked even by professionals, is what happens when the yearly exclusion is breached. In that case, any amount given to that person, while still tax free, will be deducted from the lifetime estate and gift tax exclusion which currently rest at $5.43 million for an individual. That means the excess gift will need to be reported on that years tax return and kept in mind down the road when making plans, especially when the estate will be right at or exceed the limit. While very few estates will ever have to worry about yearly and lifetime exclusions, those that do are wise to keep in mind the requirements as failure to comply may lead to headache down the road.
See Carrie Schwab-Pomerantz, Tax-Free Gift Limits: How Much Money Can You Give??, Huffington Post, November 30, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
