Estate and Gift Tax Limits for 2021 Have Increased
Beginning in 2021, the lifetime estate and gift tax exclusion (which is indexed for inflation) will rise to $11.7 million, up from $11.58 million in 2020. This is the limit on tax-free wealth transfers during an individual’s lifetime or at death. As a result, couples who have not yet made any lifetime gifts will be able to avoid estate taxes if their combined estate is less than $23.4 million. Please be aware, it may be necessary for a surviving spouse to file an estate tax return for his or her deceased spouse in order to take advantage of this combined exclusion amount.
While voting has ended for the 2020 Presidential and Congressional elections, many results have yet to be declared. There are a number of proposals from Democratic candidates which would reduce the lifetime exemption to a much smaller number, perhaps as low as $3.5 million. There are also suggestions that the rates for taxable transfers could rise from the current 40% flat rate. Of course, nothing is certain in politics; however, if you are planning a large lifetime gift, timing may be an important consideration. A 2020 gift might be a safer bet to assure that you take advantage of these larger exemptions while they still exist.
The annual gift tax exclusion will remain at $15,000, the same amount as it was last year. So, for 2020 and 2021, you can make a gift of $15,000 to as many people as you like without it counting against your lifetime estate and gift tax exclusion. Spouses can combine their annual exclusions to gift a combined $30,000 to an unlimited number of recipients.
In addition to this annual tax exempt amount, taxpayers can make non-taxable gifts to pay for tuition, dental, and medical expenses for anyone they choose. However, the payments must be made directly to the provider of the service – they do not count as non-taxable gifts if they are made as reimbursements.
If you have questions about how these rules may apply to you, please contact us or our friends at Maddox, Thomson & Associates. We are glad to help.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.