Higher Gift Limits in 2011 and 2012

Every person can make a tax free gift to any other person of $13,000 per calendar year. So, you can give your child $13,000 this year and their spouse if they are married the same amount.  If you are married your spouse could do the same.  So, a married couple could give another married couple $52,000 per year. 

The issue is what happens if we give more than these limits.

Prior to 2011, there was a lifetime exemption of $1 million.  This means that you could give up to that amount (in addition to the $13,000 per year) without paying gift taxes.  The gift tax is taxed at the same rate as estate taxes and is paid by the donor (the person making the gift).

Under the 2010 Tax Relief Act, for gifts made in 2010, the exemption is $1 million and the gift tax rate is 35%. For gifts made after Dec. 31, 2010, the gift tax is reunified with the estate tax, with an applicable exclusion amount of $5 million and a top estate and gift tax rate of 35%.

This means that you can gift up to $5 million without any gift tax implications.  This amount will reduce the estate tax exemption, but for many older Americans this new limit will allow us to transfer weakth to the next generation with little of no tax implication. 

This area is overly complex and you should consult with your tax advisors before making any estate and gift tax moves.  Feel free to call us if you want to discuss the particulars of this law and how it impacts your specific situation.

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