Ask the Expert: Is the Gift Tax Exemption Per Recipient or a Single Amount?
By Elizabeth Taylor, former Director – Estate Market in the Specialty Markets Division
Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:
Is the gift tax exemption per recipient or a single amount?
The gift tax exemption—sometimes referred to as the lifetime exemption—is a single amount that you can give either during your lifetime or at death; for 2016 that amount is $5.45 million. Unlike the annual exclusion, which allows you to give $14,000 each (for 2016) to as many recipients as you’d like, the gift tax exemption is a single amount. For example, let’s say you have three children. You could use the annual exclusion to give up to $42,000 to your children each year ($14,000 to each child). But if you wanted to give $64,000 to each child this year, you would use up $150,000 of your lifetime exemption.
All gifts in excess of the annual exclusion “count against” or “use up” your gift tax exemption, meaning that the gift tax exemption is reduced by the gifts you make above annual exclusion levels. Note, however, that the gift tax exemption is indexed for inflation each year. This means that you get a little more that you can give each year as the gift tax exemption amount increases.
Any amount of the gift tax exemption that remains at your death can be passed to beneficiaries without estate tax.
Gifts that use gift tax exemption (that is, gifts that are greater than those that qualify for the annual exclusion) require a gift tax return to be filed; the return is generally due April 15 of the year after the year the gift is made (just like an income tax return). If you have questions, it’s a good idea to talk with your tax advisor about this return.
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