Understanding The Lifetime Estate Tax Exemption

On Behalf of | Jul 28, 2022 | Tax Tips |

Many of my clients want to gift or transfer property to beneficiaries of their choosing. There are several options.

  1. Each person may make outright gifts to any number of people they choose during their life time annually. The amount allowed changes but today, you can gift up to $16,000 (2022) per person tax-free without using up any of your lifetime gift and estate tax exemptionwhich is now $12.06 million for federal estate tax purposes. For married couples, this means they can give $32,000 per year per recipient beginning this year without estate tax consequences. If you wish to give an individual more than that, then you need to do some tax planning, utilizing the $12.06 million federal exemption; and $1M Massachusetts exemption.
  2. And by the way, the $12.06 million lifetime exemption is expected to drop to $6M in 2026. This drop could affect more estates than you might imagine because of the increase in value in assets such as real estate in recent years. I have clients who purchased homes long ago, and now they are worth in the millions requiring some planning!
  3. You can utilize trusts to give funds to your loved ones, during your life time or after death; or
  4. Funds and property may be gifted under your will.

In all cases the tax strategy of gifting should be considered BEFORE making the gift. For

Example, while a gift of $16,000 per year is acceptable, more than that may require a gift tax return and a calculation of how much your gift exemption remains following the gift.  In addition of you have property like stocks that you paid for 50 years ago at $50,000 and it is now worth $2M (a distinct possibility) you might want to give the appreciated stocks to charity before you sell them and give the proceeds away. A sale of such an asset might incur a significant capital gain tax, which could, in certain circumstances, be absorbed by the charity.

The use of this tax exemption should be discussed with your financial advisor, your accountant and an estate planning attorney. Be certain to establish a relationship with a qualified professional who can keep you advised about any other changes in the estate tax rules that might affect your transfer of assets.

Contact our MA estate planning office for more support.