Generally
An annual exclusion giving program is a simple and powerful method to reduce one's taxable estate upon death. In general, an individual with a net worth over $3,500,000 in 2009 (or a married couple whose combined net worth exceeds $7,000,000) can anticipate that federal estate taxes will be due upon death.

An individual can give $13,000 each year to as many persons as he or she may choose. A donee may be a child, a child's spouse, other family member, or a non-relative. Annual gifts that do not exceed the $13,000 limit are not subject to federal gift tax. and no gift tax return needs to be filed for such transfers. For most states, annual exclusion gifts often do not incur state gift taxation because most states do not impose a gift tax.

Annual exclusion gifts that are made outright to a grandchild or more remote descendant also do not incur generation-skipping transfer (GST) tax. GST tax may otherwise apply when lifetime transfers or transfers upon death are made which skip a generation.

The federal estate tax benefit of a single $13,000 annual exclusion gift can be about $5,850. Any future appreciation in value or the accumulation of future income generated by the property given away is also excluded from the donor's taxable estate.

For residents of the District of Columbia and Maryland, additional savings of about $1,100 apply because these jurisdictions impose their own estate tax in addition to the federal estate tax.

A married couple can effectively double the savings.  This can be accomplished with each  spouse, separately each from their own separate bank account , giving $13,000 each per recipient (for a total of $26,000).  Further, a married couple can use each individual spouse's $13,000 annual limit regardless of which spouse actually owns the transferred money (or property), such as when a jointly held checking account is used to pay out the gifts from. This is accomplished by the timely filing of a federal gift tax return signed by both spouses, making the so-called "split-gift election."   The need for the separate gift tax return can sometimes be avoided simply by avoiding the use of a jointly held checking account for gift giving, and using a separately held bank account from which the gift is made from.

In addition to the $13,000 annual gift tax exclusion, an individual may directly pay medical or educational expenses in an unlimited amount. Such payments are excluded from the federal gift tax (also avoiding gift and estate taxes in most states) and do not reduce the $13,000 annual exclusion.  If the person qualifies as your dependent for medical itemized deductions, you may be entitled to a deduction for the payments as well.

Annual exclusion gifts may be (and frequently are) made in trust. The trust must be specifically designed to ensure that annual gifts made in trust continue to qualify for the $13,000 annual exclusion, otherwise an annual gift tax return is required and your life-time exclusion is depleted.  Annual exclusion gifts also may be made to Educational Section 529 plans to cover college costs for a beneficiary, such as a grandchild. Special feature: optionally, via an election made on a gift tax return, five years of annual exclusion gifts may be made all at one time (i.e., up to $65,000 for an individual donor in 2009, or up to $130,000 for a married donor electing a split-gift election in 2009) to a Section 529 plan.

Quick look-ups:
1981 IRS present interest gift annual donee exclusion: $3,000
1982 IRS present interest gift annual donee exclusion: $10,000
2001 IRS present interest gift annual donee exclusion: $10,000
2002 IRS present interest gift annual donee exclusion: $11,000
2003 IRS present interest gift annual donee exclusion: $11,000
2004 IRS present interest gift annual donee exclusion: $11,000
2005 IRS present interest gift annual donee exclusion: $11,000
2006 IRS present interest gift annual donee exclusion: $12,000
2009 IRS present interest gift annual donee exclusion: $13,000

The annual donee exclusion is not cumulative. Accordingly, if it is not used during a particular year, the opportunity to use that year's annual donee exclusion vanishes. The use of reciprocal transfers to multiply the benefits of the annual donee exclusion is not permitted.

IRS Code §2503(b) The exclusion is available only when the gift transfer consists of a present interest (i.e., an interest or estate commencing in possession or enjoyment immediately). No exclusion is available for a gift made to a trust for the transferor's descendants or other donees where the value of a particular beneficiary's right to income cannot be determined.



1997 IRS unified credit: $600,000
2001 IRS unified credit: $675,000
2002 IRS unified credit: $1,000,000
2003 IRS unified credit: $1,000,000
2004 IRS unified credit: $1,500,000
2005 IRS unified credit: $1,500,000
2006 IRS unified credit: $2,000,000
2007 IRS unified credit: $2,000,000
2008 IRS unified credit: $2,000,000
2009 IRS unified credit: $3,500,000
2010 IRS unified credit: unlimited (no taxes due for deaths in 2010)
2011 IRS unified credit: $1,000,000


Though the estate tax is repealed for 2010, by current law it is resurrected in 2011 and the unified credit (estate tax exemption) will be set back to the 2003 level of $1,000,000.

While the federal estate tax is increased in stages and repealed, the gift tax is fixed at $1,000,000 and remains in existence in 2010, the year of the repeal of the federal estate tax.


Lifetime gift exemption f/k/a applicable exclusion amount f/k/a unified credit
1981 IRS lifetime gifts allowed to utilize the unified credit: $???,000
1997 IRS lifetime gifts allowed to utilize the unified credit: $600,000
1998 IRS lifetime gifts allowed to utilize the unified credit: $625,000
1999 IRS lifetime gifts allowed to utilize the unified credit: $650,000
2000 IRS lifetime gifts allowed to utilize the unified credit: $675,000
2001 IRS lifetime gifts allowed to utilize the unified credit: $675,000
2002 IRS lifetime gifts allowed to utilize the unified credit: $1,000,000
2009 IRS lifetime gifts allowed to utilize the unified credit: $1,000,000

 

Nolo Gift Tax FAQ
http://www.nolo.com/lawcenter/ency/article.cfm/ObjectID/DAC2BB31-35E4-43B2-9BDFA70AD3775418/catID/257899BC-C5FA-435D-BA9BCC083F55357E

What are Gift taxes?
http://law.freeadvice.com/tax_law/gift_tax_law/gift_taxes.htm

Findlaw Gift Tax Information
http://cobrands.public.findlaw.com/states_new.html

GiftLaw Calculator (for charitable giving)
http://www.giftlaw.net/glcalc.jsp?WebID=GL2004-0521


 

State Tax Central (all states)
http://www.statetaxcentral.com/ask.html

AZ has neither an inheritance tax nor a gift tax.
http://www.revenue.state.az.us/azmove.htm



CT Gift Taxes
http://www.brookfieldct.org/taxfacts.htm

http://www.ct.gov/drs/cwp/view.asp?a=1509&q=271012&drsPNavCtr=%7C41130%7C41285%7C



NH State compared to every other State.
http://www.nheconomy.com/nheconomy/obid/main/index.php?ID=36&ch_table=link5



NY gift tax returns do not have to be filed for gifts made on or after January 1, 2000.
http://tax.custhelp.com/cgi-bin/tax.cfg/php/enduser/std_alp.php?p_sid=cV7-a9Eg&p_lva=&p_li=&p_page=1&p_cat_lvl1=25&p_cat_lvl2=32&p_search_text=&p_new_search=1



NC Gift Taxes
http://www.ces.ncsu.edu/depts/fcs/frm/pubs/fcs2738.html

http://www.dor.state.nc.us/taxes/gift/



TN Gift Taxes
http://www.state.tn.us/revenue/misc/inheritgiftfaq.htm















































Colin M. Cody, CPA, CMA
TraderStatus.com LLC
6004 Main Street
Trumbull, Connecticut 06611-2400

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