Gifting can be a strategic part of estate planning because it allows individuals to reduce the size of their taxable estate while providing financial support to their beneficiaries. While people are free to gift what they want to who they wish to, specific limits apply before federal gift taxes kick in.
The Internal Revenue Service (IRS) has specific limits for annual and lifetime gifting that are essential for individuals to be aware of to manage their estate planning and tax implications effectively. These limits are updated annually, and exceeding these limits can result in significant tax implications.
Annual gifting limits
For 2024, the individual annual gifting limit has been adjusted to $18,000 per recipient per gift-giver. This means that an individual can gift up to $18,000 to another person without needing to file a gift tax return or having the amount count towards their lifetime gift exemption. This limit is doubled for married couples, allowing a total gift of up to $36,000 per recipient without incurring tax liabilities.
Lifetime gifting and estate tax exemption
In addition to the annual gifting limits, there is a combined lifetime gift and estate tax exemption. For 2024, this exemption amount is set at $13.61 million per individual. Individuals can give away that amount over their lifetime without incurring federal gift or estate taxes. For married couples, this exemption amount is doubled to $27.22 million.
While gifting is vital in estate planning, it’s only one part. Anyone working on their estate plan should learn about the various options that may help them ensure their wishes are followed after they die. Having a comprehensive estate plan is beneficial for everyone involved.