If you amassed significant wealth over your lifetime, your Tennessee estate may be subject to federal estate taxes. Federal estate taxes range from 18% to 40%, depending on how much the value of your estate exceeds the federal exemption of $11.4 million. The good news is that you can reduce your estate taxes by as much as 55% or more by waiting to gift assets through your will. FindLaw explains how to use gifts to reduce estate taxes.
One of the easiest ways to avoid estate taxes is to use your annual gift exclusion. As of 2019, the IRS allows individuals to exclude up to $15,000 in gifts, per recipient, each year.
Married couples may double their gift tax exclusion amounts. If you are married, you and your spouse can jointly gift up to $30,000 of your estate per recipient per year. In fact, you can gift up to $30,000 to a recipient even without your spouse’s consent, as the IRS will assume married couples make the gift jointly.
If you wish to gift your assets to your spouse, you can avoid estate taxes all together. The U.S. allows spouses to exchange gifts tax-free, so long as each spouse is a U.S. citizen. For non-citizens, the gift tax exemption is $155,000.
You should be careful about when you give a gift. The IRS bases the annual gift exemption off of the calendar year, which does not pose a huge problem for individuals. In fact, many individuals use this fact to their advantage, and you can, too. For instance, if your daughter needs to make a down payment on a house, you and your spouse can gift her $30,000 in December and another $30,000 after the new year. You will not incur a tax in doing so and you will have reduced your estate taxes by $60,000.
You should not use this article as legal advice. It is for educational purposes only.