Gifting can be an incredibly satisfying part of estate planning. By gifting assets during your lifetime, you get the enjoyment of seeing what your loved ones do with this part of their inheritance. One concern you may have about gifting, however, is whether these gifts will be taxed.
Will I owe a gift tax?
Fortunately, most people will not have to pay a gift tax. In 2022, you can give up to $16,000 in cash or assets per individual without owing a gift tax. You may, however, have to disclose the gift to the IRS if you give more than $15,000 either in cash or assets to someone. You can give as many $16,000 gifts per person as you would like without being subject to gift taxes. Donations to charities and nonprofit organizations are not considered gifts.
Gift tax and the estate tax
Gifting works hand-in-hand with the estate tax exemption. Generally, if you are giving someone more than the annual gift exclusion, the excess over $16,000 pours over into the $11.7 million lifetime estate tax exemption. So, while you may need to file a gift tax return, you may not owe any tax on the gift. The estate tax exemption lasts as long as you are alive.
Learn more about estate planning
Gifting can be made an integral part of your estate plan. There are benefits to gifting versus leaving an inheritance in a will or trust. That being said, gifting can go hand in hand with a will or trust. What is important to understand is whether you will be taxed on your gift. This can help you make strategic decisions regarding your estate plan.
