Estate and Gift Tax Figures
Estate and Gift Tax Figures Attorneys in the Thumb of Michigan
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Exemptions for Federal, Michigan Estate and Gift Taxes in 2025
Federal Estate and Gift Tax:
A gift tax is a federal tax imposed on the transfer of property from one person (the donor) to another (the recipient) while receiving nothing, or less than full value, in return. The estate and gift tax exemption for 2025 is $13.99 million per individual, up from $11.58 million five years ago in 2020. This means an individual can leave $13.99 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $27.98 million. The annual gift exclusion amount in 2025 is $19,000.
Michigan Estate and Gift Tax:
Fortunately, Michigan does not impose its own estate and gift taxes.
What is Gift Tax?:
Transfer of Assets: The gift tax applies when assets such as cash, stocks, real estate, or other property are transferred from one individual to another without receiving adequate consideration in return.
Exemptions and Exclusions: There are exemptions and exclusions to the gift tax. Each year, you can give a certain amount of money or assets to another person without incurring gift tax. This is called the annual gift tax exclusion. As of 2025, this exclusion is $19,000 per recipient. Additionally, there's a lifetime gift tax exemption, which allows individuals to give away a certain amount over their lifetime without paying gift tax. As of 2025, the lifetime exemption is $13.99 million per individual.
Recipient's Responsibility: In most cases, the gift tax is paid by the donor, not the recipient. However, if the donor doesn't pay the tax, the IRS can impose it on the recipient.
Unified Gift and Estate Tax: The gift tax is part of a unified federal gift and estate tax system. This means that the lifetime gift tax exemption and the estate tax exemption are unified. Any portion of the lifetime exemption used during a person's lifetime reduces the amount available to exclude from the estate tax at death.
When does Gift Tax Concern Someone?:
Large Gifts: The gift tax typically concerns individuals who make large gifts exceeding the annual exclusion amount. If you give more than the annual exclusion amount to any one person in a calendar year, you must report the gift to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Lifetime Exemption: Individuals with significant wealth may need to consider the gift tax when making substantial lifetime gifts that exceed the lifetime exemption amount. These gifts could have implications for their estate tax liability upon their death.
Estate Planning: For those engaging in estate planning, understanding the gift tax is crucial. Strategic gifting can help reduce the size of your taxable estate, potentially minimizing estate tax liability for your heirs.
Medicaid Lookback Period: In addition to gift tax considerations, individuals should be aware of the Medicaid lookback period, which is a 5-year period preceding a Medicaid application during which asset transfers are scrutinized. Large gifts made during this period could result in a penalty period during which Medicaid benefits are unavailable.
How to Be Careful?:
Consult with Professionals: Before making substantial gifts, especially those that may impact your tax liability or Medicaid eligibility, it's advisable to consult with tax professionals and estate planning attorneys. They can provide guidance on tax-efficient gifting strategies and ensure compliance with IRS regulations while considering Medicaid implications.
Keep Records: Maintain thorough records of all gifts made, including the recipients, amounts, and dates. Accurate record-keeping is essential for proper reporting to the IRS and demonstrating compliance with gift tax rules, as well as for Medicaid eligibility purposes.
Consider Gift Splitting: Married couples can "split" gifts, effectively doubling the annual exclusion amount for joint gifts to any individual. This strategy can be advantageous for couples looking to maximize their combined annual exclusion while being mindful of potential Medicaid implications.
Be Mindful of Estate Planning Goals: When making gifts, consider how they align with your overall estate planning goals. Gifting can be a valuable tool for transferring wealth and minimizing taxes, but it should be done thoughtfully and in line with your broader financial objectives, including potential Medicaid eligibility considerations.
In summary, the gift tax is a federal tax on the transfer of assets, with exemptions and exclusions available to taxpayers. It concerns individuals who make large gifts exceeding certain limits and is an important consideration for estate planning purposes. Being careful involves understanding the rules, seeking professional advice, and implementing gifting strategies that align with your financial goals. Contact us today if you have concerns about how your gifting may affect your Estate Planning or Medicaid Eligibility.
