Many seniors wish to make gifts to children or other family members during their lifetimes, whether it’s in the form of cash, real estate, or tangible personal property. Besides getting to see beneficiaries enjoy their gifts, seniors can also use those gifts to reduce the size of their estate and lessen the tax burden after they pass away. But seniors must always keep in mind that there are tax consequences and considerations to those gifts, which could end up causing a lot of problems and costing a lot of money.
One important thing to note is that the annual gift exclusion amount is $15,000 (as of 2018) per gift, for a total lifetime exclusion of $11.2 million. This means that you can give each of your children gifts up to $15,000 annually until you reach the $11.2 million exclusion. If you surpass the annual exclusion, you won’t necessarily have to pay a gift tax, but you will have to file a gift tax return. This is because any amount over $15,000 will count towards the lifetime exclusion, which the IRS will keep track of. The gift tax rate is between 18% and 40%, and the gift giver is usually responsible for paying the tax.
Another general rule of thumb is that if you’re looking for property to make a gift out of, look to property that will increase in value. This is because the property in your possession at the time of your death will impact probate fees and possibly even estate taxes, depending on the size of your estate. When your beneficiary receives the property as part of the estate, the property receives a step up in tax basis that can have a positive impact on capital gains taxes. However, making a gift of a property that will increase in value during your lifetime will make the beneficiary’s tax basis the same as yours if the property is ever sold. This can have varying tax consequences down the road, so it’s important to speak with a qualified Ohio elder law attorney to determine what your best option is when making a gift. Keep in mind, too, that making a large gift of property will impact your lifetime exclusion, which may also impact your estate taxes.
If you have more questions about tax consequences that may arise from gifting assets or money to loved ones, please contact our Ohio elder law office at 877-653-3450 to schedule a complimentary initial consultation.