Question

1. What are the common goals and objectives of estate planning?

2. What is the gift tax annual exclusion for a non-citizen spouse?

3. List all of the transfers we have learned about which will not result in a gift tax obligation

Answer 1

1.

Common estate planning goals include:

• Creating a last will and testament
• Setting up an estate trust in the names of beneficiaries
• Selecting an executor to supervise the objectives of your will and ensure they are followed
• Adding or removing beneficiaries from 401(k)s, life insurance policies and IRAs
• Making funeral arrangements
• Establishing yearly gifting to reduce estate taxes
• Arranging a durable power of attorney to oversee additional assets and investments

Consequences of Dying Without a Will

2,

On November 15, the IRS announced the official estate and gift exclusion amounts for 2019 in Revenue Procedure 2018-57.

For an estate of any decedent dying during calendar year 2019, the applicable exclusion is increased from $11.18 million to $11.4 million. This change increases not only the applicable exclusion amount available at death, but also a taxpayer’s lifetime gift applicable exclusion amount and generation skipping transfer exclusion amount. This means a husband and wife with proper planning could transfer $22.8 million estate, gift and GST tax free to their children and grandchildren in 2019.   If no new tax law is passed, the increased exclusion amounts are scheduled to expire on December 31, 2025, which would mean a reduction in the exclusion amounts to $5 million plus adjustments for inflation.

The estate, gift and GST tax rate remains the same at 40% and the gift tax annual exclusion remains at $15,000.

The gift tax annual exclusion to a non-citizen spouse has been increased from $152,000 to $155,000. While gifts between spouses are unlimited if the donee spouse is a United States citizen, there are restrictions when the donee spouse is not a United States citizen.

The New York exclusion amount was changed as of April 1, 2014, and does not match the federal exclusion amount. In 2018, the New York exclusion amount is $5.25 million. Beginning in 2019, the exclusion is scheduled to increase to $5.49 million, and then will increase with inflation each year thereafter. It is important to note that, unlike the Federal exclusion amount, the New York exclusion amount is not portable, meaning if the first spouse to die fails to utilize his or her full exclusion amount, the surviving spouse will not be able to utilize the first spouse to die’s unused exclusion amount.

3.

Not all transfers of property from one person to a non-spouse beneficiary where no cash or other monetary value is exchanged are taxable for federal gift tax purposes. Currently, there are three types of such transfers that are not actually considered gifts at all for federal gift tax purposes: (1) annual exclusion gifts, (2) certain payments for educational expenses, and (3) certain payments for medical expenses.

What Are Annual Exclusion Gifts?

An annual exclusion gift is one that qualifies for the current $15,000 per person annual exclusion from federal gift taxes. In other words, under the Internal Revenue Code, if property is transferred from one person to a non-spouse beneficiary where no cash or other monetary value is exchanged and the value of the property transferred is $15,000 or less, then the transfer is not a gift at all. The annual exclusion from gift taxes is indexed for inflation on an annual basis but must increase by at least $1,000, so it can sit at the same amount for several years.

Married couples can combine their annual exclusion amounts and gift $30,000 to each person per year without incurring any gift tax liability. But note that even if a couple limits their gift to double the annual exclusion amount, they may still need to file a federal gift tax return using IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return to report any "split gifts." They will need to consult with their accountant to be sure. If a gift tax return is required, it will be due on April 15 of the year following the year in which the gift was made.

Note that gifts made to a spouse who is a U.S. citizen are exempt from gift taxes due to the unlimited marital deduction, while gifts made to a spouse who is not a U.S. citizen have their own annual exclusion amount.