While most people are aware of the fact that there is a Federal estate tax in place you may not know about the gift tax. Yes, there is a federal levy that is imposed on asset transfers of a significant nature while you are still alive.
There is an annual exemption of $13,000 per gift recipient. Any gifts that you give exceeding this amount of money to one person during a particular year become taxable.
It is possible to utilize a portion of your unified gift/estate tax exemption when you are giving gifts in excess of $13,000 to someone within a given year. But, you have to be cognizant of the fact that this will reduce the amount of the exclusion that is left to apply to your estate once you have passed away.
What is the amount of the lifetime exclusion? This year it is $5.12 million, but under existing laws it will be reduced to just $1 million next year.
When it comes to receiving gifts the influx of money is not considered to be taxable income for the recipient. The exception to this would be interest earned on top of the face value of the gift going forward. The gift of a certificate of deposit would be a good example of a cash gift that would appreciate, and in this case the appreciation would be taxable income.
There is no denying the fact that the tax laws can be rather complex, and they are changing all the time. The best way to proceed when you are making plans for the future is to have a meaningful discussion with a good South Carolina estate planning lawyer. Your attorney will evaluate your situation, answer your questions, and apprise you of your options with regard to tax efficient actions.
John Kuhn, Estate Planning Attorney
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