Tax Considerations for Gifting PC1411-Print

institution for tuition amounts or to a provider of medical care (including payments for medical insurance, but not for expenses that are reimbursed by insurance). These payments are not treated as additional gifts to the family, and will avoid estate tax in the donor’s estate. 4. GIFTING YOUR LIFETIME EXEMPTION NOW The combined gift and estate tax exemption is $5,450,000. You may transfer these amounts to another beneficiary without incurring estate or gift taxes. This doesn’t apply to your spouse because you may transfer unlimited amounts to your spouse. Gifts must be irrevocable but can be made of a future interest, not just a present interest, allowing you to provide access to the funds in a trust with certain conditions (e.g., the beneficiary reaches a certain age). The illustration below demonstrates the power of early gifting.*

GIFT

NO GIFT

Initial Amount

$1,000,000

$1,000,000

Account Value after 15 Years Growth

$2,000,000

$2,000,000

- Estate Tax

$0

$800,000 (at 40%)

Beneficiary Amount

$2,000,000

$1,200,000

*Assumes 15% capital gains rate continued, estate tax at 40%. 5. TAXABLE GIFTS

Taxable gifts include gifts in excess of your annual exclusion gifts and your lifetime exemption and can consist of almost any type of asset, including cash, real estate, securities, business interest, and limited partnership interests. Gifts must be irrevocable but can be made of a future interest, not just a present interest, allowing you to provide access to the funds with certain conditions (e.g., the beneficiary reaches a certain age). While every dollar of taxable gifts requires a gift tax return and gift tax paid, the effective cost of the gift tax is less expensive than the estate tax. This is because when a gift is made, only the amount gifted is taxed, and the tax that is paid is now out of the estate. There is not tax paid on the gift tax. Additionally, growth of the gifted asset avoids estate tax.

$1,000,000 gifted today doubles in 15 years

$1,000,000 today doubles in 15 years in estate to $2,000,000

$400,000 Estate Tax

Child’s investment less 15%* capital gains on tax on grown $1,850,000

TO GIFT EARLY?

OR NOT TO GIFT EARLY?

Child receives $1,600,000

Contact a Commerce Trust advisor for help exploring your options and identifying a gifting strategy that fits your situation and reduces your tax burden. 1-855-295-7821 | commercetrustcompany.com

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