Lifetime Gift Tax Exemption 2021

2021-05-27

gift

The lifetime gift tax exemption is a certain amount of money that you can give away to others during your lifetime without having to pay gift tax. The exemption amount changes from year to year, and for 2021, it is $11.7 million per person.

The lifetime gift tax exemption is a valuable estate planning tool that can help you to reduce your estate tax liability. By giving away assets during your lifetime, you can reduce the value of your estate and potentially avoid estate taxes when you die.

In this article, we will discuss the lifetime gift tax exemption in more detail. We will explain what it is, how it works, and how you can use it to reduce your estate tax liability.

lifetime gift tax exemption 2021

The lifetime gift tax exemption is a valuable estate planning tool that can help you to reduce your estate tax liability. Here are 10 important points about the lifetime gift tax exemption for 2021:

$11.7 million per person
Applies to gifts of cash and property
Exemption amount changes annually
Can be used to reduce estate tax liability
Can help to avoid probate
May have gift tax consequences for the recipient
Should be considered as part of an overall estate plan
Can be used to fund trusts
Can be used to make charitable donations
Can be used to help family members with financial needs

If you are considering making a gift, it is important to speak with an experienced estate planning attorney to discuss the lifetime gift tax exemption and how it can be used to reduce your estate tax liability.

$11.7 million per person

The lifetime gift tax exemption is a certain amount of money that you can give away to others during your life without having to pay gift tax. The exemption amount changes from year to year, and for 2021, it is $11.7 million per person.

This means that you can give away up to $11.7 million to as many people as you want during your life without having to pay any gift tax. However, if you give away more than the exemption amount, you will have to pay gift tax on the excess amount.

The gift tax rate is progressive, which means that the more you give away, the higher the tax rate will be. The gift tax rates for 2021 are as follows:

* 18% on gifts over $11.7 million but not over $23.4 million * 20% on gifts over $23.4 million but not over $35.2 million * 22% on gifts over $35.2 million but not over $100 million * 35% on gifts over $100 million

If you are considering making a gift, it is important to speak with an experienced estate planning attorney to discuss the gift tax exemption and how it can be used to reduce your estate tax liability.

Applies to gifts of cash and property

The lifetime gift tax exemption applies to gifts of both cash and property. This means that you can give away up to $11.7 million of cash, property, or a combination of both during your life without having to pay gift tax.

However, it is important to note that the gift tax exemption does not apply to all types of property. For example, the gift tax exemption does not apply to gifts of life insurance policies or gifts of certain types of trusts.

If you are considering making a gift of property, it is important to speak with an experienced estate planning attorney to discuss the gift tax exemption and how it applies to the specific type of property you are giving away.

In addition, it is important to keep in mind that the gift tax exemption is a per-person exemption. This means that you can give away up to $11.7 million to each person you want to give a gift to. However, if you give away more than $11.7 million to any one person, you will have to pay gift tax on the excess amount.

Exemption amount changes annually

The lifetime gift tax exemption amount changes from year to year. This is because the exemption amount is indexed to inflation. The purpose of indexing the exemption amount to inflation is to ensure that the exemption amount keeps pace with the cost of living.

Adjusted for inflation
The lifetime gift tax exemption amount is adjusted for inflation each year by the Internal Revenue Service (IRS). The IRS uses the Consumer Price Index (CPI) to calculate the inflation adjustment.
Recent changes
In recent years, the lifetime gift tax exemption amount has increased significantly. For example, the exemption amount was $5 million in 2011. It increased to $10 million in 2018. And it increased to $11.7 million in 2021.
Future changes
It is likely that the lifetime gift tax exemption amount will continue to increase in the future. This is because inflation is expected to continue to rise in the years to come.
Planning considerations
When planning your estate, it is important to consider the fact that the lifetime gift tax exemption amount changes from year to year. You should make sure that your estate plan is flexible enough to accommodate changes in the exemption amount.

If you have any questions about the lifetime gift tax exemption amount, you should speak with an experienced estate planning attorney.

Can be used to reduce estate tax liability

One of the most important benefits of the lifetime gift tax exemption is that it can be used to reduce your estate tax liability. The estate tax is a tax on the value of your assets when you die. The estate tax exemption amount is the amount of your assets that you can pass on to your heirs without having to pay estate tax.

Reduce the value of your estate
By making gifts during your lifetime, you can reduce the value of your estate and potentially avoid estate tax when you die. For example, if you have an estate worth $2 million and you give away $1 million during your lifetime, your estate will only be worth $1 million when you die. This means that your heirs will not have to pay estate tax on the $1 million that you gave away.
Avoid probate
In addition to reducing your estate tax liability, making gifts during your lifetime can also help you to avoid probate. Probate is the process of administering your estate after you die. Probate can be a long and expensive process, and it can also be public. By making gifts during your lifetime, you can avoid probate on the assets that you give away.
Other benefits
In addition to reducing your estate tax liability and avoiding probate, making gifts during your lifetime can also provide other benefits. For example, making gifts can help you to:
- Provide financial assistance to your loved ones
- Support charitable causes
- Reduce your income tax liability

Can help to avoid probate

Probate is the process of administering your estate after you die. Probate can be a long and expensive process, and it can also be public. By making gifts during your lifetime, you can avoid probate on the assets that you give away.

There are two main ways to avoid probate:

Make gifts during your lifetime
The most effective way to avoid probate is to make gifts during your lifetime. When you make a gift, you are transferring ownership of the asset to another person. This means that the asset will not be included in your estate when you die, and it will not be subject to probate.
Create a living trust
Another way to avoid probate is to create a living trust. A living trust is a legal document that allows you to transfer ownership of your assets to a trustee. The trustee will manage the assets in the trust according to your instructions. When you die, the assets in the trust will be distributed to your beneficiaries without having to go through probate.

If you are considering making a gift or creating a living trust, it is important to speak with an experienced estate planning attorney. An attorney can help you to understand the pros and cons of each option and can help you to create a plan that meets your specific needs.

Avoiding probate can provide a number of benefits, including:

Reduced costs
Less time
Increased privacy
Greater control over your assets

If you are interested in learning more about how to avoid probate, please speak with an experienced estate planning attorney.

May have gift tax consequences for the recipient

In general, gifts are not taxable to the recipient. However, there are a few exceptions to this rule. One exception is if the gift is considered to be a "gift in contemplation of death." A gift in contemplation of death is a gift that is made within three years of the donor's death and that is intended to avoid estate taxes. If a gift is considered to be a gift in contemplation of death, the recipient may be liable for gift tax on the value of the gift.

Another exception to the general rule that gifts are not taxable to the recipient is if the gift is made to a non-US citizen. If a gift is made to a non-US citizen, the recipient may be liable for gift tax on the value of the gift. The gift tax rate for non-US citizens is 35%.

In addition, if the recipient of a gift sells the gift within one year of receiving it, the recipient may be liable for capital gains tax on the profit from the sale. The capital gains tax rate depends on the recipient's income tax bracket.

If you are considering making a gift, it is important to be aware of the potential gift tax consequences for the recipient. You should speak with an experienced estate planning attorney to discuss the gift tax implications of your gift.

Should be considered as part of an overall estate plan

The lifetime gift tax exemption is a valuable estate planning tool that can help you to reduce your estate tax liability. However, it is important to remember that the lifetime gift tax exemption is just one part of a comprehensive estate plan. When planning your estate, you should consider all of the following factors:

Your assets
The first step in estate planning is to take inventory of your assets. This includes all of your property, both real and personal. Once you know what you own, you can start to make decisions about how to distribute your assets after you die.
Your beneficiaries
Who do you want to inherit your assets? Once you know who your beneficiaries are, you can start to make decisions about how to distribute your assets in a way that meets their needs.
Your estate tax liability
The estate tax is a tax on the value of your assets when you die. The estate tax exemption amount is the amount of your assets that you can pass on to your heirs without having to pay estate tax. You should consider your estate tax liability when making decisions about how to distribute your assets.
Your other estate planning goals
In addition to reducing your estate tax liability, you may have other estate planning goals. For example, you may want to provide for your spouse or children, or you may want to support a charitable cause. You should consider your other estate planning goals when making decisions about how to distribute your assets.

Once you have considered all of these factors, you can start to create an estate plan that meets your specific needs. The lifetime gift tax exemption is a valuable tool that can help you to reduce your estate tax liability, but it is just one part of a comprehensive estate plan.

Can be used to fund trusts

A trust is a legal document that allows you to transfer ownership of your assets to a trustee. The trustee will manage the assets in the trust according to your instructions. Trusts can be used for a variety of purposes, including:

Reducing estate taxes
Providing for your spouse or children
Supporting a charitable cause
Protecting your assets from creditors

There are many different types of trusts, each with its own unique set of rules and benefits. One type of trust that can be funded with the lifetime gift tax exemption is a generation-skipping trust (GST). A GST is a trust that is designed to pass assets to your grandchildren or great-grandchildren without having to pay estate tax on the assets.

GSTs can be a valuable estate planning tool for families with significant wealth. By funding a GST with the lifetime gift tax exemption, you can reduce your estate tax liability and pass more of your wealth to your descendants.

If you are considering creating a trust, it is important to speak with an experienced estate planning attorney. An attorney can help you to choose the right type of trust for your needs and can help you to create a trust that meets your specific goals.

Can be used to make charitable donations

One of the most common uses of the lifetime gift tax exemption is to make charitable donations. Charitable donations are gifts that you make to qualified charitable organizations. Qualified charitable organizations include churches, schools, hospitals, and other non-profit organizations.

When you make a charitable donation, you can deduct the amount of the donation from your income tax. This means that you can reduce your income tax liability by making charitable donations.

In addition to reducing your income tax liability, making charitable donations can also help you to reduce your estate tax liability. When you make a charitable donation, you are removing the value of the donation from your estate. This means that your estate will be worth less when you die, and you will be less likely to have to pay estate tax.

There are a number of different ways to make charitable donations. You can make a donation in cash, property, or securities. You can also make a donation through a trust or a will.

If you are considering making a charitable donation, it is important to speak with an experienced estate planning attorney. An attorney can help you to choose the right type of donation for your needs and can help you to make a donation that meets your specific goals.

Can be used to help family members with financial needs

The lifetime gift tax exemption can be used to help family members with financial needs in a number of ways. For example, you can use the exemption to:

Pay for education expenses
You can use the lifetime gift tax exemption to pay for your children's or grandchildren's education expenses. This can include tuition, fees, books, and other expenses.
Provide financial assistance
You can use the lifetime gift tax exemption to provide financial assistance to family members who are struggling financially. This can include helping to pay for rent, utilities, or other living expenses.
Make a down payment on a home
You can use the lifetime gift tax exemption to help family members make a down payment on a home. This can help them to achieve their dream of homeownership.
Start a business
You can use the lifetime gift tax exemption to help family members start a business. This can help them to achieve their entrepreneurial goals and become financially independent.

When using the lifetime gift tax exemption to help family members with financial needs, it is important to be aware of the gift tax rules. The gift tax is a tax on the transfer of property from one person to another. The gift tax rate depends on the value of the gift and the relationship between the donor and the recipient.

If you are considering making a gift to a family member, it is important to speak with an experienced estate planning attorney. An attorney can help you to understand the gift tax rules and can help you to make a gift that meets your specific goals.

FAQ

The following are some frequently asked questions about the lifetime gift tax exemption for 2021:

Question 1: What is the lifetime gift tax exemption?
Answer 1: The lifetime gift tax exemption is a certain amount of money that you can give away to others during your life without having to pay gift tax. The exemption amount changes from year to year, and for 2021, it is $11.7 million per person.

Question 2: Who qualifies for the lifetime gift tax exemption?
Answer 2: Every individual is entitled to the lifetime gift tax exemption. This means that you can give away up to $11.7 million to as many people as you want during your life without having to pay gift tax.

Question 3: What property qualifies for the lifetime gift tax exemption?
Answer 3: The lifetime gift tax exemption applies to gifts of both cash and property. This means that you can give away up to $11.7 million of cash, property, or a combination of both during your life without having to pay gift tax.

Question 4: How do I claim the lifetime gift tax exemption?
Answer 4: You do not need to take any special steps to claim the lifetime gift tax exemption. The exemption is automatically applied to all gifts that you make during your life.

Question 5: What are the consequences of exceeding the lifetime gift tax exemption?
Answer 5: If you give away more than the lifetime gift tax exemption, you will have to pay gift tax on the excess amount. The gift tax rate is progressive, which means that the more you give away, the higher the tax rate will be.

Question 6: How can I reduce my gift tax liability?
Answer 6: There are a number of ways to reduce your gift tax liability. One way is to make gifts to qualified charitable organizations. Another way is to make gifts to trusts. You can also reduce your gift tax liability by making gifts to your spouse.

Question 7: What is the generation-skipping transfer tax (GST)?
Answer 7: The GST is a tax on gifts that are made to skip a generation. For example, if you give a gift to your grandchild, you may have to pay the GST. The GST rate is 40%.

These are just a few of the most frequently asked questions about the lifetime gift tax exemption. If you have any other questions, please speak with an experienced estate planning attorney.

In addition to the FAQ, here are a few tips for maximizing the lifetime gift tax exemption:

Tips

Here are a few tips for maximizing the lifetime gift tax exemption:

Tip 1: Make gifts early and often.
The sooner you start making gifts, the more time your gifts will have to grow and compound. This can help you to reduce your overall estate tax liability.

Tip 2: Give to qualified charitable organizations.
Gifts to qualified charitable organizations are not subject to the gift tax. This means that you can give as much as you want to charity without having to worry about paying gift tax.

Tip 3: Make gifts to trusts.
Trusts can be a valuable tool for reducing your estate tax liability. By placing assets in a trust, you can remove them from your estate and avoid paying estate tax on those assets.

Tip 4: Make gifts to your spouse.
Gifts to your spouse are not subject to the gift tax. This means that you can give as much as you want to your spouse without having to worry about paying gift tax.

Tip 5: Be aware of the generation-skipping transfer tax (GST).
The GST is a tax on gifts that are made to skip a generation. For example, if you give a gift to your grandchild, you may have to pay the GST. The GST rate is 40%.

By following these tips, you can maximize the lifetime gift tax exemption and reduce your overall estate tax liability.

The lifetime gift tax exemption is a valuable estate planning tool that can help you to reduce your estate tax liability. By understanding the exemption and how to use it, you can make gifts to your loved ones and charitable organizations while minimizing your tax liability.

Conclusion

Here are a few of the main points to remember about the lifetime gift tax exemption:

The lifetime gift tax exemption for 2021 is $11.7 million per person.
The exemption applies to gifts of both cash and property.
You can give away up to the exemption amount to as many people as you want during your life without having to pay gift tax.
If you give away more than the exemption amount, you will have to pay gift tax on the excess amount.
There are a number of ways to reduce your gift tax liability, such as making gifts to qualified charitable organizations, trusts, and your spouse.

If you are considering making a gift, it is important to speak with an experienced estate planning attorney. An attorney can help you to understand the gift tax rules and can help you to make a gift that meets your specific goals.

By using the lifetime gift tax exemption wisely, you can reduce your estate tax liability and pass more of your wealth to your loved ones.