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Gifting and federal estate exemption question

I have two questions:

I heard that there is a $13k gift limit per year. I also head that if you gift more than that, you have to file some IRS form and the gift over that amount, affects the federal estate exemption.

So, let's say I gifted $500,000 in 2002 and filed the IRS form. Then I die in 2009.

1. Does that mean, since the federal estate exemption is 3.5 million, it is now 3 million because of my 500k gift in 2002?

2. Am I correct to assume that it's the person that gives the gift is the one that will be affected by the federal exemption when he dies?So, if I gift $500,000 to my niece, she has no issues with federal exemption when she dies related to this specific gift?

Sorry if it's not making sense. I'm a little confused.

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Attorney answers (2)

Avvo Pro

Reputation Level 10
Currently a person may make annual gifts of $13,000 - to as many people as you want- with no gift tax consequence. On top of that you have an additional $1,000,000 you can give away during your lifetime without paying tax. In 2009, had you given away 1,000,000 before your death, you can die with and addiotonal 2,500,000 with no estate tax. With simple planning you can double that amount if you are married.

If you give your niece 500,000 in 2002 (the annual gift tax exclusion was $10,000) you will be able to die in 2009 with 3,010,000 with out paying estate tax.

if you don't file the 709 gift tax return then penalties and interest can accrue based on what tax might be do. With a gift of 500,000 no tax would be do so you don't need to worry much unless you have made a gift of something that is hard to value or if you have made many other large gifts.

one thing to keep in mine is that the law is set to change in 2011. Then the lifetime exclusion will only be 1,000,000 total and to the extent your estate and prior gifts over the annual exclusion amount exceed 1,000,000 will be subject to estate tax at 55%
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Avvo Pro

Reputation Level 8
Your Q.2: Any gift you give your niece will be included in her estate when she dies and if her estate exceeds the personal exemption in the year she dies ($3.5M this year) it will be subject to estate tax; in other words, your gift may be taxed twice if it had the effect of pushing her into an estate tax bracket...
1 person marked this answer as good

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