In 2018, the gift tax annual exclusion amount per donee will increase to $15,000 for gifts made by an individual and $30,000 for gifts made by a married couple who agree to "split" their gifts.
If you have not already done so, now is the time to take advantage of your remaining 2017 gift tax exclusion amount, being $14,000 for gifts made by an individual and $28,000 for gifts made by a married couple who agree to "split" their gifts, so that you can ensure that gifts are "completed" before December 31, 2017.
In lieu of cash gifts, consider gifting securities or interests in privately held companies or other family-owned entities. The assets that you give away now may be worth significantly less than they once were, and their value hopefully will increase in the future. So the $28,000 gift that your spouse and you make in 2017 (and the $30,000 gifts that you and your spouse make in 2018) may have a built-in discount that the Internal Revenue Service cannot reasonably question. That discount will inure to the benefit of your beneficiaries if the value of those assets rises.
Your annual exclusion gifts may be made directly to your beneficiaries or to trusts that you establish for their benefit. It is important to note, however, that gifts to trusts will not qualify for the gift tax annual exclusion unless the beneficiaries have certain limited rights to the gifted assets (commonly known as "Crummey" withdrawal powers). If you have created a trust that contains beneficiary withdrawal powers, it is essential that your Trustees send Crummey letters to the beneficiaries whenever you (or anyone else) make a trust contribution. For a more detailed explanation of Crummey withdrawal powers, please see the September 2012 issue of Personal Planning Strategies, available on our website.
If you have created an insurance trust, remember that any amounts contributed to the trust to pay insurance premiums are considered additions to the trust. As a result, the Trustees should send Crummey letters to the beneficiaries to notify them of their withdrawal rights over these contributions. Without these letters, transfers to the trust will not qualify for the gift tax annual exclusion.
2017 Gift Tax Returns
Gift tax returns for gifts that you made in 2017 are due on April 16, 2018. You can extend the due date to October 15, 2018 on a timely filed request for an automatic extension of time to file your 2017 income tax return, which also extends the time to file your gift tax return. If you created a trust in 2017, you should direct your accountant to elect to have your generation-skipping transfer ("GST") tax exemption either allocated or not allocated, as the case may be, to contributions to that trust. It is critical that you not overlook that step, which must be taken even if your gifts do not exceed the annual gift tax exclusion and would, therefore, not otherwise require the filing of a gift tax return. You should call one of our attorneys if you have any questions about your GST tax exemption allocation.