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Gift Tax

This is just a quick note to clarify something that many of my first time clients fail to understand.  The Federal Gift Tax Exemption is $14,000 as of 2016.  This means that you can give to as many individuals as you like $14,000 without having to file a Federal Gift Tax Return.  If, however, you gift more than $14,000 to anyone this year, then you are required to file a Federal Gift Tax Return also known as a Form 709.  That return allows the IRS to keep track of those taxable gifts.  Those gifts then offset your Federal Estate Tax exemption.  So, for example, in 2016 you have a $5,450,000 Estate Tax Exemption.  If you gave $14,001 to someone – then you are required to file a Gift Tax return which will in turn reduce your $5,450,000 Estate Tax return to $5,449,999.  If you gave $5,464,000 ($5,450,000 plus 14,000) then you will have Zero (0) Estate tax exemption left, so when you die anything you leave to someone other than a spouse or charity will be taxed.  Now, this is a simplified explanation of how the gift tax and estate tax exemptions work together.

Please remember one thing however, just because you are allowed to make a $14,000 annual gift for gift tax purposes does not mean that this gift is exempt from Medicaid look-back rules.  Gift Tax/Estate Tax rules are distinct and separate from Medicaid Rules.

If you have any gift tax, estate tax or elder law matters, please do not hesitate to call us.  Remember though, reading this blog does not create an attorney client relationship and does not constitute legal advice for you to rely upon.  If you want us to become your attorney, you must sign an engagement letter.

 

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