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Gift Tax Exemption | Lifetime Gift Tax Exemption | The American College of Trust and Estate Counsel - YouTube
Channel: The American College of Trust and Estate Counsel
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Hi, I'm Jean Carter, an ACTEC Fellow from Raleigh,
North Carolina, and I have with me Larry Rocamora,
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who is an ACTEC Fellow from Durham, North
Carolina. Our topic today is, 'should I use
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my estate tax exemption now? Larry, let's start
with the basics. Tell us what we're talking about.
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Thanks, Jean. I think to understand the basics you
have to first start off with understanding the US
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Wealth Transfer Tax system. There are really two
things to understand. First, you have unlimited
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gifts that you can give to your spouse, who is
a US citizen, and there's no tax at all. Second,
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you can also do that to charitable organizations
as well. Now above that, you can give what is
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called the exemption amount to anybody and pay no
tax, but any dollar above that exemption amount
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is taxed at 40 percent. The exemption
amount right now is 11.58 million dollars,
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and that is historically high. So a lot of this
may not apply if your estate is below that,
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but the exemption is scheduled to go back down
to six million dollars and change in 2026.
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So again, it depends on the size of the estate as
to whether the exemption amount will affect you
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or not. The other thing is that if you're married
and you leave everything to your surviving spouse,
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there's not a tax at the first death and if
the spouse files a tax return, they can inherit
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the first spouse that dies' exemption amount.
So, you can leave up to 22 million dollars to
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your heirs and not pay estate tax; or even if it
goes down to 6 million, 12 million dollars to your
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heirs and pay no estate tax if you're married
and file. This election called "portability."
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So, is it good, generally, to make gifts?
Well, Jean, I have to give you a lawyer's
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answer. It depends. It's always good to make
gifts to the donee who receives them. They can
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use the assets now that can help their lives,
and so that is a good part about making gifts.
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In addition, making a gift now gets that
future appreciation out of your estate.
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So that if you make a gift and the asset grows,
that growth is not going to be subject to estate
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tax. An example may be helpful. Let's assume
you have Apple stock, you bought it at $50,000
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and it's now worth $100,000 and you give it to
your child. Well, you've used $100,000 of your
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exemption because there's a lifetime exemption as
well that is unified. So you've used $100,000 of
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your exemption, but if Apple grows to $300,000
at your death, that $200,000 escapes estate
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taxation. So that's the good part. Now when you
die after giving that amount away – you've used
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$100,000 of your exemption. You only have 11
million four hundred and eighty thousand dollars
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left. The bad part about giving is that the donee
receives the basis of the donor for tax purposes.
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So, in my example, the $50,000 that I paid
for Apple -- that's what my child receives
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and when he sells that stock or she sells that
stock, they're going to pay capital gains on the
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difference between fair market value and
$50,000. If I kept the stock til I died,
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then they would receive it at the $300,000 fair
market value basis and can sell it and pay no
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estate tax. So, the bad part about giving is you
don't get what we call that step-up in basis.
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The good part about giving is that $200,000
increase escapes the estate taxation altogether.
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The other thing about gifting is you can give
$15,000 per person, per year away and it doesn't
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affect that unified exemption amount. It doesn't
have any effect on it at all; and so, you can give
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$15,000 per person, per spouse, per in-law,
and still have the same exemption remaining.
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Now, back to our topic. Should people
go ahead and use their exemption now?
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I always think it's better to give away assets now
if there's a possibility you will be subject to
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estate taxes when you die at the 40 percent rate
that it currently is, or if it could increase.
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We don't know what the tax laws are going
to be in the future. So making gifts now
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guarantees your use of that exemption
without having to worry about it
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and you get the future appreciation on
those gifts outside your estate as well.
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Okay. What if I can't afford to
give away, today, $11,580,000?
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A lot of times we have one spouse make the gift
in a trust for the benefit of the surviving
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spouse and family. Then that spouse can make
distributions from the trust to themselves and use
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it back for the donor spouse. So, you can retain
access to the trust property by giving it away,
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getting it out of your estate and still have the
use of it, provided your spouse lets you. So,
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it's always up to the spouse. Once you give
it away, it's a gift; and if that spouse dies,
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you won't have access to it and you have to use
some other techniques that you might be able to do
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to continue to have some access
if you ever need it. Again,
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you never want to give away more than what you
need to live on. You need to keep that forever.
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Well, this is very interesting. Larry, do
you have any final thoughts on this topic?
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Well, I've enjoyed being with you. Again, I
think it's better to give than receive. So,
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giving now is good. Use your annual exclusions.
If you have highly appreciated assets,
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better to keep those and give assets with
high basis -- things like cash that has a high
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basis - and to get that future appreciation
out as long as you can afford to do so.
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Larry, thank you very much
for your time this morning.
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