Lowering estate taxes with annual gifts
Wealthy Ohio individuals can reduce the size of their estate and potentially lower the eventual federal estate tax burden estate tax by giving annual gifts to their family members. Each […]
Wealthy Ohio individuals can reduce the size of their estate and potentially lower the eventual federal estate tax burden estate tax by giving annual gifts to their family members. Each year, single people are allowed to give gifts of $14,000 to as many people as they choose without incurring any gift tax. A couple can give tax-free gifts of up to $28,000.
Using annual gifts is a way that a person can reduce the size of their estate during their lifetime. For example, a couple that has five children could potentially give their children $140,000 per year. Over 10 years, these annual gifts could potentially cut $1.6 million from the taxable part of the couple’s estate.
It is important to note that in addition to the regular annual gift exclusions, individuals can give unlimited tax-free gifts for tuition and health care. However, the educational and medical exclusion can only be used if the donor makes payments directly to a health care provider or educational institution. People may also want to consider using an intentionally defective grantor trust as a way to exclude assets from their estate while receiving income generated by the trust during their lifetime.
The current federal estate tax exclusion is $5.45 million for individuals and $10.9 million for married couples. As a result of its size, very few people take this into account when meeting with an estate planning attorney to prepare or review trusts and wills, but this exclusion could be subject to change. The state of Ohio repealed its separate estate tax effective Jan. 1, 2013.