LIFETIME GIFTS by Hills Bank Wealth Management Group
Annual Gift Tax Exclusion Each taxpayer is allowed to transfer/gift a certain amount of assets each year, without concern for gift taxes. For 2020, this "annual exclusion amount" is currently $15,000 per donor (this amount is subject to adjustment for inflation in future years). A gift of this amount can be given to each of any number of donees. If husband and wife agree, they can "split" gifts and give twice this amount, currently $30,000, to each of any number of individuals. Marital Deduction There is an unlimited marital deduction for gifts of separate or community property passing from one spouse to another. Educational or Medical Expenses A donor may give, free of gift tax consequences, unlimited amounts for a donee’s school tuition (not books, supplies, or other expenses) or qualified medical expenses. Such gifts must be made directly to the school or health care provider, and not to the donee. Deductibility for Income Tax Purposes Gifts or gift taxes are not deductible for income tax purposes, unless contributed to a qualified charity. Gift Tax Returns These returns are filed annually, generally by April 15 of the year following the gift for amounts in excess of the annual gift tax exclusion. Capital Gains and Losses A donee generally takes over the basis of gifted property from the donor, known as “carry¬over” basis. A later sale of gifted property by the donee can result in a capital gain, a capital loss, or a situation in which there is neither a gain nor a loss. Including Gifts in the Estate If a gift exceeds the annual gift tax exclusion amount, it may be added to the taxable estate as adjusted taxable gifts; but the appreciation on the assets from date of gift until date of death is not brought into the computation. Gifts of life insurance policies, however, are still included if made within three years of death. Certain incomplete transfers (e.g., retained life estates, revocable transfers, etc.) will also be included in the gross estate without regard to when they were made. Advantages of Making Gifts • Gifts put future appreciation of assets out of the estate • The gift tax paid reduces the taxable estate • Making gifts of income-producing assets may reduce current income taxes • Probate administration is not necessary for gifted assets • The donor can see the beneficiaries enjoy the assets while he or she is still living If you have questions, we invite you to schedule a meeting with one of our experienced Trust and Wealth Management Officers by calling 1-800-899-8858. We look forward to serving you as your trusted advisor.
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