If you reside in New York, there is a federal estate and gift tax, as well as a state level tax. In fact, many other states have their own gift/estate tax scheme in addition to the federal one. Currently, under federal law, you are permitted to give up to $16,000 to each person you wish to give to. In 2023, this amount will increase to $17,000 per person. If your spouse joins in the gift, the amount is then $32,000. So, for example, if you have three children, you can gift almost $100,000 per year without any adverse tax consequences. The gift is not taxable to the child, and does not impact the donor either. If you gift more than the permitted amount, there is no gift tax unless the total lifetime gifts you have made (aside from the annual gifts) exceeds the federal and state exemption amount. The federal exemption amount for 2022 is12.06 million per person. If you make gifts above the annual amount, then your $12.06 million dollar exemption is reduced by the amount of the gift. In 2023, this amount is being increased to 12.92 million.
The current federal estate tax exemption, which is increased every year due to inflation (as is the annual gift exemption), will be expiring at the end of 2025 unless Congress takes action. The amount will then decrease to approximately $6 million. One should not forget, however, that in addition to making annual gifts, you are permitted to gift in unlimited amounts if it is for medical or educational purposes. However, those gifts must be made directly to the institution for which the money is for. Of course, gifts to charity are essentially tax-free.
In terms of New York State, there currently is no gift tax at all. However, if you die within three years of making a gift, the value of the gift will come back into your taxable estate. Like the federal government, you can gift in an unlimited amounts to medical or educational institutions and to charities. For the year 2022, the estate tax exemption for New York is $6,110,000, but it is increasing to $6,580,000 for 2023.
Of course, there are many ways to avoid or at least minimize the estate and gift tax. If one is interested in doing so, they should seek the advice of an attorney experienced in taxation and estate planning.