Understanding Gift Taxation: A Foundation to Estate Planning Techniques

Situation: Many people plan to pass on money and property to their loved ones after they die. However, if they have a sizable estate, they need to consider making lifetime gifts. Never has the opportunity for making lifetime gifts been so great because the amount of property sheltered from taxation is at a historic high of $13.61 million.

However, to take advantage of this opportunity your clients must act now. The Tax Cuts and Jobs Act provisions increasing the exemption to the current amount is expected to sunset to around $7 million ($5 million
indexed for inflation) at the end of 2025. As a result of the current situation the number of calls and questions concerning various gifting strategies has significantly increased in recent months. This Counselor’s Corner will provide a review of gift taxation and some of the most common questions I’ve received as they relate to gifting to an irrevocable life insurance trust (ILIT).

Solution: Before we get into a discussion of some of the common questions that have come across my desk concerning gift taxation a little background is in order. The gift tax is a federal tax on the transfer of money or property by an individual to another person, either directly or indirectly (like beneficiaries of a trust), while getting less than something of equal value in return. The person who makes the gift is known as the donor and the person who receives the gift is called the donee.