Q: In a recent column, you said “The amount that one individual can give to another without trigger the gift tax in 2009 is $13,000.”
I was very surprised by this answer, since you’re usually so accurate. If you read IRS Publication 950, you’ll see that the tax rate for the first $1 million of gifts to a person, in excess of annual limits, is essentially zero, since any tax due is offset by credits. So a parent could (for example) give a child a $300,000 property without paying a single dime of taxes on the gift, if gifts to that child, to date, were less than $700,000.
I guess the bottom line is that the U.S. Government (I’d say “the IRS”, but I suspect that the ultimate source is wording of Congressional legislation) uses confusing language: Gifts above the annual amount are “taxable”, but for most people, no tax will actually be due.
It would be much simpler if there were a higher annual limit (say, $100,000) and no lifetime figure (or offsetting credits) at all. But that wouldn’t provide employment opportunities for tax accountants and tax lawyers and estate planners, or for workers at the IRS, so I guess there are not any lobbyists working to simplify matters.
In short: Those expecting to give a person more than $1 million between gifts and estate proceeds should almost certainly pay an estate planner, for advice on things like trusts. Those not expecting this (the vast majority of people) should worry about other things than exceeding the annual limit.
A: Thanks for elaborating on my answer in two emails, which I have edited into one comment for clarity.
Just to be clear, the amount that one individual may give another in 2009 (the gift tax limit for 2009) without triggering any sort of taxable event down the line, and also without triggering any IRS paperwork or forms, is $13,000. That’s a total of $13,000 during the whole calendar year 2009. If you give a person a gift that exceeds that amount, you will need to file paperwork with the IRS. But I agree that you can give up to $1 million per lifetime total. Thanks for the additional explanation.
Read here for more information on gift tax limits and estate planning.