The gift tax applies when you transfer assets to another person without receiving fair market value in return. It's designed to prevent people from avoiding estate taxes by giving away their wealth before death.
Key concepts:
Annual exclusion: You can gift up to a set amount per recipient per year without triggering gift tax reporting.
Lifetime exemption: The gift tax and estate tax share a unified exemption. Gifts exceeding the annual exclusion reduce your available estate tax exemption.
Strategic gifting: Transferring appreciating assets during your lifetime removes future growth from your taxable estate. Combined with valuation discounts through FLPs or LLCs, gifting can be a powerful wealth transfer tool.
Gifting strategies must be carefully coordinated with your overall estate plan to avoid unintended consequences.
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