I wouldn't characterize GP as "pretty much wrong" — I would say that one line left out that it's an annual gift limit.
Also, there is an 11M lifetime limit that can be tapped beyond the annual gift amount. However, you generally have to file forms when you make such gifts. [1] So although you can give up to $11M during life, you will likely need to file forms in order to not get into trouble. Also, if you have an estate plan, it was very likely drafted with the understanding that you have your entire $11M left intact at death, which allows for certain estate planning techniques. If you have blown through a bunch of it during life, you may wreak havoc on the carefully laid plans of your trust/estate.
> I wouldn't characterize GP as "pretty much wrong" — I would say that one line left out that it's an annual gift limit.
GP said that gifts are taxed if you exceed the annual limit, and this is 100% wrong. The only way you can be taxed on gifts is by exceeding the lifetime limit.
The annual limit determines if you need to report your gift to the IRS or not, but nothing else.
If you stay below the annual limit every year, you will never exceed the lifetime limit, unless you and the recipient live to 140 or something, so the different limits are related, but that's it.
> If you stay below the annual limit every year, you will never exceed the lifetime limit, unless you and the recipient live to 140 or something, so the different limits are related, but that's it.
Actually, if you stay below the annual gift limit every year, you can never exceed the lifetime limit. Only gifts in excess of the annual limit count toward the lifetime amount.
> GP said that gifts are taxed if you exceed the annual limit, and this is 100% wrong.
No, he said “only if” not just “if”, and this is precisely, 100% correct:
X only if Y = X does not occur except when Y occurs (but does not specify whether X cab fail to occur if Y occurs)
X if Y = X always occurs if Y occurs (but does not specify if X can occur without Y)
X if, only if, Y (sonetimes written X iff Y) = X occurs always and only when Y occurs.
(Actually, he said “are taxable”, not “are taxed”, so “only if” would also be correct, more on that below.)
> If you stay below the annual limit every year, you will never exceed the lifetime limit, unless you and the recipient live to 140 or something
No, for two reasons: one, gifts that are below the annual exclusion aren’t taxable and don’t count against the lifetime exemption. Secod, even if you just passed the exclusion for a single recipient (so, you had a taxable gift $1 more than the exclusion level each year—note, the full amount is taxable if you exceed the exclusion), you would never (given historical relationship) reach the lifetime exemption, which annually has increased by more than the annual exclusion.
Gifts of the type subject to tax, to a single recipient, in a single year, exceeding the annual exclusion amount are taxable and must be reported. (Note that the annual exclusion is per recipient from a donor.)
But taxable gifts are only actually taxed on the amount the donor has exceeded the current lifetime exemption (across all recipients).
Can you add some clarity? If I can give $17k/per person/per year, or would be 650 person years before it kicks in?
Is the $11m limit based on the disburser? So I could give $17k per person year, but if I did that to 650 people, I would be taxed after that year?
Generally, I think it’s people in between who need the advice. Someone who gives away $11M should have an advisor; if i give $17k to each of my kids per year, it’s in the grey area and I might not have great legal advice.
11m total is based on gifter, while 17k per year is based on recipient.
If you give more than 17k per year to a kid but will never give away 11m you just need to disclose it on a tax form, you don't need to pay a gift tax. (State taxes can have their own rules)
The $11M only comes into play if you give more than the annual gift amount in a year. Unlike the annual gift amount (which applies to gifts from you to an unlimited number of individuals — assuming you're not using straw men to funnel money to a desired recipient), the lifetime exemption amount applies to all gifts you give to anyone. That is, you only get one $11M amount, whereas the $17k allows you to make gifts of that amount to any number of people each year.
Except if you give over the $17k/person, then you're supposed to file a federal 709 to report and track the lifetime amount, and if you're lucky enough to have estate tax it will add to that. Whereas if you're under the annual exclusion, there is no paperwork. So the vast majority of people want to just stay under the annual exclusion amount. If someone needs more than $17k this year, call the rest a loan and you can choose to forgive it next year.
Technically a loan requires even more paperwork, I think? And you have to charge interest, even if you then forgive it (which also counts as a gift) you are required to first go through the motions. https://www.schwab.com/learn/story/family-loans-should-you-l...
Yes, I misspoke when I said "there is no paperwork". The difference is that the loan paperwork does not have to be filed with the IRS, whereas a 709 does.
These laws fundamentally exist to constrain how much wealth can be passed down outside of estate tax, which is the main concern of the article you have linked. If you don't quite cross all of the t's when giving a loan to an older family member (which is the complete opposite of trying to push wealth forwards in time), it's unlikely the IRS is going to be too concerned.
The lifetime limits are currently 11 million, which means that the first 11 million you give will not be taxed.