The Grinch’s Guide To The Annual Gift Tax Exclusion
In 2020, financial stress, travel restrictions, and caution about exposure to rapidly surging COVID-19 variants put a damper on many families’ holiday cheer. This year, some of those families are determined to have a fabulous celebration, but some realized, during quiet times at home and joyous exchanges of holiday greetings over Zoom, that going overboard for the holidays is overrated. This year, when a judge in Georgia banned the Elf on the Shelf from the countdown to Christmas, parents well outside his jurisdiction rejoiced. The exchange of stocking stuffer gifts or extravagant baubles among adults may end up on the chopping block, too. Perhaps, this year, it will be easier to convince your adult children to accept the cash gifts that you have been trying to offer them all year, and which they only accepted last December because of the annual gift tax exclusion. It may even be easier to do that this year, because the future of the gift tax exclusion hangs in the balance. Changes to tax laws may require you to rethink your estate plan, and to take certain actions before the changes take effect. An estate planning lawyer can help you do this.
What Is the Annual Gift Tax Exclusion?
While the recipients of cash gifts do not have to pay taxes on the gifts they receive, the givers of large cash gifts must pay taxes on the gifts when their amount exceeds a certain threshold. That threshold is called the annual gift tax exclusion, and its amount varies from year to year. In 2021, you can give $15,000 tax free. The better news is that you can give as any $15,000 gifts this year as you choose to give, as long as they all have different recipients.
What Will Happen After 2021?
There is a lifetime limit to tax exemptions on cash gifts. You can give as many $15,000 cash gifts as you choose, year after year, until you reach the lifetime limit. Currently, the lifetime limit is $11.7 million, which vastly exceeds the net worth of most people. This lifetime limit is scheduled to sunset at the end of 2025, which means that, in 2026, the lifetime limit will become $6.2 million. Of course, the lifetime limit may change even sooner than that, and it may go even lower than $6.2 million. Changes to estate taxes and gift taxes are part of the Build Back Better economic recovery plan, and those details of the plan are still being worked out.
All of this means that 2021 is the year to be generous with cash gifts, and you should meet with your estate planning lawyer to discuss the new changes to estate law.
Reach Out to Us Today for Help
Giving cash gifts to your family is the most fun part of estate planning. A Washington DC estate planning lawyer can help you with the parts that are not fun, as well. Contact Tobin, O’Connor & Ewing for a consultation.