To Gift or Not to Gift – a Primer on Annual Exclusion Gifting

Many individuals incorporate annual gifting into their estate planning strategy for good reason – it is an easy way to remove assets from what may otherwise be a taxable estate without any gift tax consequences to the donor.  

What is considered a gift?   Generally, any transfer between individuals where full consideration is not received in return.  

Each year, the IRS allows individuals to gift up to a certain amount to any number of individuals they wish, gift-tax free.  In other words, there are no gift tax consequences to the donor provided the donor does not exceed the exclusion amount published by the IRS for the tax year in question.

In 2022, the IRS allows gifting of up to $16,000.00 per donee.  In 2023, that amount increases to $17,000.00.  A donor may gift those amounts each year to as many donees as they wish, gift-tax free.

For married couples, the amounts of the exclusions for joint gifts doubles.  A married couple may gift up to $32,000.00 per donee in 2022 and $34,000.00 per donee in 2023.

An accountant can guide you through the process of determining whether a gift tax return should be filed to memorialize annual gifts that are being made up to the annual exclusion amounts.

It is important to note that the gift must be made in the calendar year in which is applies.  To qualify, a gift must be completed, and that is shown with both delivery and acceptance.  For example, in 2022, if an annual gift is contemplated via a check written by the donor to the donee, best practices would not only have the donor tendering the gift to the recipient in 2022, but also that the check is negotiated by the recipient in 2022.

For those individuals with taxable estates (presently individuals who pass away with more than $4 million in Illinois for purposes of the state estate tax and for federal estate tax purposes, those individuals who pass away with more than $12.06 million in assets), an annual gifting strategy can be an easy way to reduce their estate size while seeing the impact and joy of their gifting on family and friends.

If you would like additional information on how to establish an annual gifting strategy, including setting up gift trusts, please contact us.