The amount you can gift during your life or pass to your heirs on your death free of federal gift and estate tax (the “unified credit”) is $5.49 million in 2017.
You can, however, make “annual exclusion” gifts that will not diminish your credit. These gifts can be of up to $14,000 per person per year, and if your spouse joins in the gift, up $28,000 per person.
You can make gifts to as many people as you like. For example, a married couple could give each of their four children $28,000, and each of their eight grandchildren $28,000, for a total tax-free gift of $336,000 in one year.
If you expect your estate to exceed your remaining unified credit, you should strongly consider making “annual exclusion” gifts before year-end in order to reduce the amount of estate taxes that will be owed on your death.
Maybe you don’t anticipate your estate being worth anywhere near that much, or maybe you’re relying on the new tax bill to eliminate the estate tax, but if you have significant assets, it’s still a good idea to think about gifting.
Not only might your assets appreciate more than you expect, but Congress can reduce the exclusion amount at any time, and even the House’s tax bill, which eliminates the estate tax, does not do so until 2024, and it’s likely that a new administration will reinstate the tax.
Further, in addition to the federal estate tax, nearly half the states have a state estate or inheritance tax. For example, in Oregon, the exemption from estate tax is only $1,000,000, and in Washington, it is only $2,129,000.
If you’re interested in end-of-the-year giving, please contact us for additional information.
