What would happen if a gift that started out at a value under the $14,000 annual limit was a gift of stock that, from the time you decided to gift it and until the transfer actually occurred, was valued at more than $14, 000? It’s actually not a big deal, as long as you follow the rules.
First, it’s important to understand that there are two very different sets of gifting laws that relate to estate planning, advises nj.com in its article, “When you gift over the annual limit.”
One set of gift rules is straightforward. For Medicaid qualification purposes, there’s absolutely no gifting permitted for five years prior to the program application. That’s seems to create a lot of confusion for people.
The second set of gifting rules concerning estate planning comes from the IRS. In 2017, the gift and estate tax exclusion is $5.49 million. That’s the lifetime exclusion, so an individual can leave $5.49 million to his or her heirs and not owe any federal estate or gift tax. A married couple can protect almost $11 million ($10.98 million) from federal estate and gift taxes.
The $14,000 limit is the most you can gift in any one year to any one person, without having to file an IRS 709 gift tax return. That amount has been set at that level since 2013. There’s no gift tax due, assuming you haven’t already exceeded the $5.49-million-dollar exemption.
However, if you exceed the $14,000 per person/per year limit, you must file a gift tax return.
While it may defy logic or just plain common sense, that’s the way the IRS does it.
The $5.49-million-dollar limit is a lifetime limit. The only way the IRS will know that you have or haven’t exceeded the exemption, is if you file a gift tax return every time you gift more than $14,000.
You see, the IRS is keeping track.
What should the person do if they accidentally made a gift that’s more than the $14,000 annual limit? Simple: file a gift tax return, and know that no tax will be due. It may be helpful to meet with an experienced estate planning attorney to explore various gifting strategies to manage tax liability and benefit your overall estate plan.
Reference: nj.com (October 18, 2017) “When you gift over the annual limit”