Lifetime gift tax planning allows you to give assets to loved ones, without paying gift taxes now or estate taxes later. Years ago, the federal government found that taxpayers were trying to avoid estate taxes, by giving away some of their property while still alive. As the donors saw their loved ones enjoying the gifts, the IRS saw the taxpayers avoiding or reducing estate taxes on these gifted assets at the death.
As a result, the gift tax was enacted to keep people from avoiding the estate tax. The basic concept is - when you give someone an asset that exceeds a permitted amount, you (the donor) must pay the IRS for that privilege, in the form of a gift tax.
If you are trying to use the lifetime wealth transfers to lower the total value of your estate and avoid or reduce estate taxes, here are three things you need to know:
- The annual gift tax exclusion is $15,000 in 2019.
- The lifetime estate and gift tax exclusion is $11.4 million in 2019.
- Some gifts are not subject to the gift tax at all.