The annual exclusion for gifts in 2021 is $15,000 ($16,000 in 2022). Above this exemption, taxable gifts are subtracted from an individual’s lifetime estate-and gift-tax exemption, which is currently $11.7 million per person. In an alternative strategy, givers can “bunch” five years of annual $15,000 gifts to a 529 education-savings plan, typically for children or grandchildren by filing Form 709 and making the appropriate election.

While the filing of a gift tax return (Form 709) is not required for gifts to individuals not exceeding the increased $15,000 annual exclusion per donee, a gift tax return is required if making gifts above the $15,000 annual exclusion. Though many gifts to trusts will qualify for annual exclusion treatment and not require disclosure by filing a gift tax return, many trusts do not qualify for such treatment and will require the filing of a gift tax return. Additionally, gift tax returns are required to “gift split” – where one spouse makes a gift in excess of the annual exclusion amount and the couple wishes to treat the gift as being made by both spouses in order to utilize the annual exclusion treatment for both spouses. To do this, both spouses need to “consent” to the treatment on the gift tax returns each will file.

The basic exclusion amount for estates and gifts is $12,060,000 ($24,120,000 married) in 2022. This increase in the exemption is set to lapse after 2025. There are also unlimited deductions for qualifying transfers during life and at death to charities and spouses.

In November 2018, the Treasury Department and the IRS issued proposed regulations that would allow individuals who make large gifts between 2018 and 2025 to retain the tax benefit of the higher exemption, even if it reverts to pre-2018 levels.

It is important to note that if a decedent’s gross estate (the fair market value of the decedent’s assets on the date of death plus prior taxable gifts) does not exceed the new increased lifetime exemption amount ($12.06 for 2022 million), an estate tax return is not required to be filed.  However, in such circumstance, if an estate tax return is filed, the decedent’s unused lifetime estate and gift tax exemption may be transferred to the decedent’s surviving spouse for use during the spouse’s lifetime or at death. This concept is known as portability, and to take advantage of this beneficial election an estate tax return must be filed.

Below is listed each state that charges estate taxes and the amount of the state’s exemption for 2021:

• Connecticut – $3,600,000
• District of Columbia – $4,000,000
• Hawaii – $5,500,000
• Illinois – $4,000,000
• Oregon – $1,000,000
• Maine – $5,800,000
• Maryland – $5,000,000
• Massachusetts – $1,000,000
• Minnesota – $3,000,000
• New York – $5,900,000
• Rhode Island – $1,600,000
• Vermont – $5,000,000
• Washington – $2,200,000

Information courtesy of Bob Jennings, Tax Speaker