
Many farmers take advantage of the $15,000 per donee annual gift exclusion. This may be changed to a per donor and that will greatly reduce the benefit.
Many of our farmer’s estate plans include using the annual gift exclusion to transfer wealth to the next generation. A farmer and their spouse can each gift $15,000 to as many people as they want each year. There is no gift tax with this gift and even better there is no requirement to file a gift tax return.
However, this method may become a thing of the past if Congress changes the rules. We are hearing a lot of chatter to change the per donee limit to per donor limit. This means that instead of $15,000 to as many persons the new rule will be limited to a total of some number per donor each year. Let’s look at an example:
Suppose Bill and Sue have four kids who are married and have 10 grandchildren. As part of their estate plan, they gift $15,000 of value to each kid, spouse and grandchild each year. Bill and Sue can each gift $270,000 annually and not have to file a gift tax return and it does not reduce their lifetime exemption.
Now let’s assume the new law limits annual gifts to $20,000 each. $250,000 of Bill and Sue’s gifts will now reduce their new lifetime $3.5 million exclusion (this could be $1 million). After 14 years, they would run out of lifetime exclusion and all of their estate would be subject to estate taxes (this assumes no inflation indexing of the lifetime exclusion).
This is an extreme example, but this proposal, along with the STEP Act that we discussed in our last post plus “The STEP ACT” for estate and gift taxes to come are actively being discussed by President Biden and Congress and many of these proposals will pass.
You may want to discuss these proposals with your representative.
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