Southwest Portland Law Group’s Guide to End of Year Gifting

Around this time of year, many people search for ways to give back to their communities, donate to local charities, or make gifts to their families and loved ones. Unfortunately, this altruistic intent can often leave people confused and overwhelmed with the tax consequences of their actions. In an effort to help you get the most out of this season of giving, we’ve put together the following guide to end of year gifting.

Basic Gift Tax Rules (Federal)
At the federal level, the annual gift exclusion amount is $15,000 for an individual ($30,000 for a married couple). This means that you can gift up to $15,000 to as many people as you’d like without it the IRS considering it a “taxable gift.”

What happens if you gift over the exclusion amount? The money you give in excess of the exclusion amount is considered a taxable gift. (e.g. I give you $16,000 in one year. I’ve made a taxable gift of $16,000- $15,000 or $1,000)

How much tax do I owe on my taxable gifts? Probably nothing. When you make a taxable gift, you are required to report it to the IRS when you file your taxes. However, no tax is due at that time. The dollar amount of taxable gifts just reduces the federal estate tax exemption you have at your death, dollar for dollar, which is why it is called a “unified credit.” Currently this is set at $11.2 million per person, meaning that each person has a combined limit of $11.2 million that they can either pass at death or during their lifetime through taxable gifts. (NOTE: gifts under $15,000 do not reduce your unified credit)

No Gift Tax in Oregon?
While most people won’t owe any federal estate tax, it is important to keep in mind that the Oregon estate tax exemption is currently set at $1 million, with no prospect of changing anytime soon. This means that Oregonians who die owning over $1 million in total assets, pay a tax on the excess over $1million.

One great way to avoid the Oregon estate tax is gifting! Oregon does not have a gift tax, making lifetime gifts a great way to reduce the size of your estate. Again, if you gift over $15,000, you must report to the IRS, but no tax is due until you deplete your $11.2 million credit. At the state level, no reporting is due.

Gifting to Reduce Estate Taxes
When gifting to reduce your estate size, it is important to keep in mind the character of the asset you are gifting and the recipient of the gift.

Certain assets, such as real property, are much better suited to pass through an estate plan because of the beneficiary’s ability to take advantage of a “stepped-up basis.” Generally, assets that appreciate greatly over time, are better passed at death, whereas things like cash are great for gifting.

Before giving a substantial amount of money to someone, make sure that they are not receiving any means-tested benefits such as supplemental security income (SSI). Gifting outright to such a person can result in unintended consequences such as a loss or reduction in benefits. Instead, something like a supplemental needs trust can be set up to achieve your goal of giving, while still protecting the recipient’s ability to receive means-tested benefits.

Giving to Charities
Unlike gifting to individuals, there is no limit to the amount tax free donations you can make to charities. Charitable giving is a great way to both support organizations and causes you care about, and reduce your estate tax liability.

In the estate planning context, there are several ways to achieve your charitable goals. One option is to include a charity (or charities) to receive an outright gift on your passing. Another option is to gift only the portion of your estate that would otherwise incur taxes. A third option could be to create a charitable foundation in your honor. The options are endless.

More questions?
Thinking about gifting or setting up a long-term gifting program? We’re happy to help you create a plan tailored to your individual needs! Please don’t hesitate to contact us to schedule a consultation with one of our estate planning attorneys.