Gift tax can be a confusing concept for my clients who are preparing their will. If you look online, you can see a lot of different information about taxes. As much as the IRS tries to make their website easy to navigate, many of the topics covered are a little too complex. So people then go to the next logical place: blogs. This can be dangerous unless you know who is the source of the blog. Are they actually knowledgeable? Or is it a kid halfway around the world writing copy for someone else? One of the most common misconceptions we discuss at Legal Strategy Sessions is the gift tax. Many clients come to their session believing that the gift tax is the same as the estate tax.

What is the Gift Tax?

The gift tax is a federal tax. It allows you to give lifetime gifts of $11.18 million for 2018 through 2025. It is also indexed for inflation. However, it doesn’t apply to,

  • Transfers to your spouse;
  • Tuition paid for someone else;
  • Medical expenses paid for someone else;
  • Gifts to political organizations; or
  • Gifts under the annual exclusion ($15,000 per donee as I write this).

If your “gift” doesn’t fall into one of these exclusions, you have to file a gift tax return the following year by April 15.

Does it Affect My Estate Plan?

The most common confusion that I encounter is that leaving property to your children is subject to the gift tax. My clients are often concerned that their estate will be subject to the gift tax. However, the assets you transfer under your estate plan are not considered a gift. In fact, many of your assets should probably be directly distributed by way of beneficiary designations, which means they aren’t even considered part of your estate for tax purposes.

When you meet with an attorney, you should tell them if you’ve filed gift tax returns. With that information, they can make sure that your estate plan is set up to maximize the available options for you. And, most importantly, a quick meeting with them can dispel any incorrect notions you may have about the gift tax and your estate.

Next Steps

If you don’t have a will yet, or if you have one that you may need to update, call my office to set up a Legal Strategy Session and we can review the best options for you – (877) AMAYERS.