Many people learn of the $13,000 annual gift tax exclusion and worry about gift taxes. In most cases, and unless you’re extremely wealthy, this worry is unnecessary. We’ll explain why below.
- You are Not Limited to Gifting $13,000 Per Year
The $13,000 annual gift tax exclusion is just one way to pass assets without paying gift taxes. In fact, this exclusion allows you to give away an unlimited amount of assets, so long as you spread the wealth and don’t give more than $13,000 to any one individual in each calendar year.
If you’re married, you can “split” gifts, meaning that you can pass $26,000 to as many individuals as you and your spouse would like in each calendar year.
A special exception to the annual gift tax exclusion is the funding of a 529 plan. The special rule allows you to fund 529 plans, for as many individuals as you would like, with 5 years’ worth of gift tax exclusion. This means that each 529 plan can be given $65,000 (or, $130,000, if you are married) in one year, but you must then wait 5 years to use this exclusion for that beneficiary again.
- Tuition and Medical Fees are Unlimited
If you pay the fees directly to the provider (and not to the individual receiving education or medical services), you will not incur gift taxes no matter how high the bills or the number of beneficiaries.
- $5,000,000 in 2011 and 2012
In addition, you have a lifetime unified credit exemption that you can give away during your lifetime (or, at your death) and not incur gift taxes. The amount in 2011 and 2012 is $5,000,000 per individual (or, $10,000,000, for a married couple.)
If you’re one of the few who can give away more than $5,000,000/$10,000,000, a qualified estate planning attorney can show you how to leverage gifts.
If you have concerns about the gift tax, consult with a qualified estate planning attorney.