Navigating the Estate Tax
Married couples with estates over $2 million benefit greatly from planned giving. The basic concept is that lifetime gifts are not included in Oregon estate tax calculations. Oregon also does not have a gift tax, meaning that estate tax can often be completely avoided through lifetime gifts. The limitation, however, is the federal gift and estate tax. Federal rules require that gifts over the annual exclusion amount be reported on a yearly basis.
The 2018 annual gift tax exclusion amount is $15,000 per person. This does not mean that gifts over the annual exclusion are necessarily taxable. Gifts over the annual exclusion amount (1) trigger the filing of a gift tax return and (2) are applied against a person’s federal lifetime estate and gift tax exclusion amount.
The projected 2018 federal estate and gift tax exclusion amount is $11.18 million, when indexed for inflation. This means that an Oregon couple is able to give a combined $22.36 million before having to pay federal gift taxes, assuming that current inflation adjustment projections are accurate. There are two main planned giving strategies: annual exclusion and non-annual exclusion programs.
Annual exclusion gifting, as the name implies, is tied to the annual exclusion amount. It is also the more common approach since annual exclusion gifts do not require the filing of a gift tax return. Recall that the annual exclusion applies on a per person, per year basis. This means that a couple can give $30,000 to their children, grandchildren, or favorite charity every year without having to file a return. These gifts can add up quickly over a short period of time, reducing the value of the grantor’s taxable Oregon estate and overall tax liability. Another non-tax benefit to giving is the grantor’s ability to see his or her beneficiaries enjoy the gift.
Non-annual exclusion programs are less common, but very useful for reducing the size of an Oregon taxable estate. This often involves making larger lifetime gifts and reporting the value on a gift tax return. The advantage to filing a return with supporting documentation of the value, like a qualified appraisal, is that doing so limits the time that the IRS has to question the value of the gift.
Whether or not a gift tax return is required, the grantor should take care to document the amount of the gift and how the value was determined. This is particularly important for non-cash gifts like business interests, antiques, and real estate.