Transcript:
Easan Arulanantham:
What is the annual gift tax exclusion, and How’s it different from the lifetime, lifetime gift tax exception, or exemption.
Tom Vaughan:
Alright, so we do have a visual on this. So we got this earlier. So you can give $16,000 per year, per person to. So for example, if my wife and I wanted to give my child and their spouse money, we could actually give away quite a bit because I could give 16,000 to my child 16,000 to that child spouse, so that’s 32,000, my wife could do the same thing. And that 64,000 So technically, we can give that couples $64,000 without affecting our lifetime exemption, so right now, lifetime exemption is 12.0 6 million, it’s a, it’s not a round number of just because it keeps going up with inflation. And, you know, a lot of people have a living trust, which actually allows them to potentially double that. And so then if I have a living trust, I could do 24 million. And what that exemption does is it just means that I can pass that money to my beneficiaries without estate taxes, right? If I give away more than 16,000 per person, let’s say I’ve got a child who needs $100,000 to get something done, you know, on their house, I can give them that 100,000. But I’m only allowed to give them 16,000. Yep. So the other 84,000 is going to reduce my gift tax exemption from 12.0 6 million down to 84,001 thing to be going by 84,001.
Easan Arulanantham:
The thing to be aware of is that in 2026, with current laws, is that the exemption will be going down to 6.0 3 million, which will be adjusted for inflation from now, till then, but it will go down. The IRS has basically said they will not claw back if you go above that. So if I say I gave my family $10 million, and then my exemption goes back to $6 and $6 million. Direct says that’s fine. What you did with these current laws is okay, we won’t tax that. And we won’t use it against you. But anything above that, in the future, we will tax.
Tom Vaughan:
Yeah. So this is kind of it’s an interesting area, because people get really twisted up on this in total. It depends on how much money you have as to whether it really matters that much, right? I mean, if you don’t have a lot of money, and you want to give 50 or 60,000 to somebody, then it comes off of your lifetime exemption, and you never expect to have that much anyway. I mean, even if it drops to 6 million, and I have a million dollars, and I give away 50,000 instead of 60 16,000. You know, so what is that an extra $34,000, right? That comes off my exemption, now I’m down to a little bit less than 6 million, but I have only a million so but you do have to be a little bit careful, because two things can happen. Number one, you could have a windfall you can have things really grow, and you could live a lot longer than you think the taxes are quite high above that to your estate, or they could change the rules and make it a lot less of an exemption, it used to be a million dollars. So who knows what they might do going forward, you know, the government is running a deficit. So there’s always this possibility that they take a look at a state’s as a possible place to get revenue. And so you do want to probably stick as much as possible. So for example, if I was going to give away, you know, 50,000, maybe I’d give 16,000. Right this year, put the other 34,000 in a note, and then just continue to give 16,000 Until I wipe out that note for that person, that would not affect my gift tax exclusion. So you know, I’m exemption to lot lifetime one, right?
Easan Arulanantham:
There’s a lot of tax planning things or estate planning things you can do for estate tax. And if you have kind of like a custom question for your situation, it’d be great to you know, schedule a little call for and we can go over that. And so it’s especially true for couples because you’re these are individual limits. So you can transfer unused stuff from unused exemptions from one spouse to another. And so you can get up to that 12 million even after it drops back down and so be okay.
Tom Vaughan:
It’s good question comes up quite often. It’s something that you know, we ended up kind of covering on a regular basis. As far as that goes, because we’ve got you know, our clients are older and they’re looking to do I’m trying to help their kids and their grandkids in different areas so it’s good good good thing to know about