In the United States, we have an Estate and Gift Tax. The total of all of the items you have acquired and maintained, at their current fair market value, on the date you die is the value of your estate. The estate exclusion amount for 2023 is $12,920,000 per person. The exclusion amount is subtracted from your total gross estate value before estate taxes are calculated. When you give any of these assets to family members, they are subject to the gift tax exclusion amount, currently $17,000 per person per year. If your gift to a family member exceeds the gift exclusion amount, the excess may be subtracted from your estate tax exclusion amount. The tracking of gift and estate amounts necessitates the use of Form 709. The review of what deductions have been taken (totaling all Form 709 adjustments) reduces the amount available for the estate exclusion, which is calculated at a person’s death.
Here is a very simplified example:
- Peter Brown, who has the filing status of Single, has been giving $20,000 each year to his daughter for the last five years. He has filed Form 709 to show his annual gift exclusion and to track his use of the estate tax exclusion. It looks like this:
| Year |
Gift |
Estate |
Total |
| 2018 |
$15,000 |
$5,000 |
$20,000 |
| 2019 |
$15,000 |
$5,000 |
$20,000 |
| 2020 |
$15,000 |
$5,000 |
$20,000 |
| 2021 |
$15,000 |
$5,000 |
$20,000 |
| 2022 |
$16,00 |
$4,000 |
$20,000 |
- In 2023, Peter tragically dies. His estate is worth $30 million dollars. How much can be excluded from his estate if the Estate Tax Exclusion in 2023 is $12.92 million? Peter has previously excluded $24,000 from gift taxes using his total Estate Tax Exclusion of $12,920,000. So, $12,920,000 minus $24,000 = $12,896,000, which is his remaining estate exclusion amount.
-
- Peter’s estate is valued at $30 million at his death. How much of his estate will be subject to the estate tax? The excess value of $30,000,000 minus $12,896,000 means $17,104,000 is taxable.
Here is another example:
- In 2023, Jerome and Shayla gave gifts of money to their children and grandchildren for special occasions throughout the year. They gave the following gifts:
-
- To their daughter, Tamara, they gave $30,000.
- To their son, Jamal, they gave $16,000.
- To their granddaughter, Valerie, who just turned 16 years old, they gave a car valued at $18,000.
- To their grandson, Carter, who just graduated high school, they gave $50,000 to start his own mobile detailing business.
-
- Which of these gifts meets the gift tax exclusion? How much, if any, will count towards their estate tax exclusion?
-
- Tamara – her gift meets the exclusion. Even though it is more than the individual exclusion amount of $17,000, the gift is from Jerome and Shayla, who are married, and thus, they have a joint exclusion amount of $34,000. (It is important to note, however, that Jerome and Shayla should each file Form 709 to split the exclusion amount to keep it nontaxable.)
- Jamal – his gift is under the individual exclusion amount. Both Jerome and Shayla can claim it as a gift.
Valerie – her gift, even though it is a car and not cash, still meets the exclusion because the value is under the joint $34,000 exclusion. (It is important to note, however, that Jerome and Shayla should each file Form 709 to split the exclusion amount to keep it nontaxable.)
- Carter – his gift exceeds the exclusion because the value is over the joint $34,000 exclusion. (In this case, Jerome and Shayla should each file Form 709 to split the gift amount and to determine if any part of the gift is taxable.)
What happens when you exceed the annual gift exclusion amount? And what is the lifetime estate tax exclusion amount?
As of 2023, the lifetime estate tax exclusion amount is $12.92 million per person. That would be $25.84 million for a married couple.
In our example above, Jerome and Shayla should each file a Form 709. Form 709 will give each a share of the gift tax exclusion. Then after subtracting the gift amount ($17,000 for each), the balance can be subtracted from one or both lifetime estate tax exclusions.
The top federal estate and gift tax rate is 40%. The majority of Americans will not have assets that exceed $12.92 million per person or $25.84 million per couple at their death, so
it is important to note that the filing of Form 709 is just a reporting document and not a taxing document.
In 2024, the estate exclusion amount will be $13,610,000 per person. However, this increased exclusion is currently only permitted because of the Tax Cuts and Jobs Act and may decrease after 2025, when it may sunset back to $5 to $7 million unless Congress extends or amends current legislation. See also
Form 706 Instructions.
If you think that you may be in a situation that necessitates the filing of a Form 709, you should seek out an experienced tax professional. You may want to do this before you gift any money, as the tax planning aspects of gift-giving can go far beyond being generous to your family now. It can also extend into the future, even after you’ve passed away.
If you are still unsure if and when to file Form 709 and want help, you can look for a tax professional in your area or go to the IRS page:
Choosing a Tax Professional. If you want to protect yourself from the IRS, consider purchasing a membership to Audit Defense by clicking
here.