Giving is a real treat for those involved, especially when gift taxes are avoided for all. But one of the biggest sources of confusion for the Annual Gift Exclusion is the number of such gifts you can make and to whom you can make them.
A recent Q&A in The Wall Street Journal titled [spoiler alert] “A Tax-Free Gift Can Go to Anyone” takes this question head on.
So, to whom may you gift assets within the exclusion amount? Answer: anyone. That is right, it makes absolutely no difference whether the objects of your generosity are near or far, family, familiar, or utter strangers. Now, you might not be interested in giving much of anything to complete strangers – charity aside – but the point is that gifting is a malleable tool, and something you may work into a much grander plan.
The name of the game is understanding the annual gift tax exclusion and your lifetime gift tax exemption.
Every individual can give up to their annual gift tax exclusion to any other individual, and as many of them as they care to, all tax free. To give more than the annual amount, however, will count against your lifetime gift tax exclusion which, in turn, will reduce your estate tax exemption available at death.
Like most areas of tax law, the time and money spent consulting with qualified legal counsel now prior to embarking on a gifting strategy will be time and money well spent later on.