Federal law allows one to gift up to $14,000 per year to as many individuals as desired, without any adverse gift tax consequences and without the filing of a gift tax return. Certainly, this is a very effective way of reducing one’s estate and, therefore, reducing or even eliminating the estate tax. In addition to this annual gift tax exclusion, one can pay medical and educational expenses for anyone, in an unlimited amounts, provided the payment goes directly to the institution. Lastly, these annual gifts can be used to fund a 529 college plan for children or grandchildren, and you can even make these annual contributions for up to 5 years in advance.
Surely, gift giving can be quite effective in reducing one’s estate, assuming the donor is comfortable with this. One caveat, however, is that New York law was changed relatively recently so that the value of any gifts made within three years of death falls back into the taxable estate, for New York State estate tax purposes. Moreover, these annual gifts may trigger a look-back period for medicaid eligibility.
IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.