The gift tax rules state that you are entitled to an annual exclusion of $12,000 per recipient.
Under gift tax law, you're entitled to present a gift valued at up to $12,000 to any number of individuals per calendar year without paying gift taxes. Under this exclusion, you could give $12,000 to each of your three children, for a total of $36,000, without paying any gift taxes. Both you and your spouse are eligible for the exclusion, so using both exclusions, you and your spouse can give up to $24,000 to an individual per calendar year without incurring any additional gift taxes.
The gift tax rules incorporate a lifetime exemption of $1 million.
Even if you give more than $12,000 to a single recipient annually, you still don't have to pay gift taxes until you exceed your lifetime exemption of $1 million. You could give your child an annual gift of $32,000-in excess of the annual exemption by $20,000-for 50 years before you had to pay a penny of gift taxes. Only the amount in excess of the annual exemption counts toward the lifetime exemption, so if you give $32,000, only $20,000 counts toward the lifetime exemption. Finally, only the amount in excess of the lifetime exemption of $1 million is subject to gift taxes.
Exceptions to exemptions under gift tax rules.
The IRS never does anything easily, so even the annual gift tax exclusion has exceptions. Qualified tuition and medical expenses do not count toward the $12,000 annual exclusion. If you pay tuition directly to a qualified educational institution, or you make payments directly to a qualified medical care provider, these payments do not count toward your annual gift tax exclusion. Theoretically, you could pay $50,000 to an educational institution and still give $12,000 in cash or other goods to the beneficiary without paying any gift taxes.
Under gift tax rules, only some gifts qualify as deductions.
The $12,000 annual exemption doesn't mean that annual gifts up to $12,000 are tax deductable; it only means you can give up to $12,000 annually without being subject to gift taxes. The only gifts that are tax deductable are gifts to qualifying charities. If you're making a gift to a charity, check with the individual charity to determine if the gift qualifies for a tax deduction.
Gift tax rules and estate tax rules are two different things.
Gift tax rules only apply to gifts made during an individual's lifetime. If an individual exceeds the lifetime exemption during his or her lifetime, he's subject to gift tax rules. If gift taxes are being calculated as part of an estate, and the decedent exceeds the lifetime gift tax exclusion, the estate is subject to estate taxes; not gift taxes.
Some states have individual gift tax rules.
In addition to the federal gift tax rules outlined here, some states also have gift taxes. Check with a local tax planning professional or a state tax authority to learn about individual state gift taxes.
 | A will or testament is a document in which a person (the testator) assigns personal property rights to others following the testator's death. Learn how to write a will that is legally binding. |
 | When looking for a living will template, understand that will language isn't the same in every state, so be sure you're using the correct language, and be as specific as possible about the treatments you are willing to accept. |
 | Researching how to write a last will and testament isn't a topic that most people want to think about, but drafting a will is a necessary part of responsible adulthood. If you've got a family to provide for or children to care for, it's especially vital that you draft a will in the event of an untimely death. |
In the event of someone dying without a will, that person is said to have died "intestate," or without legal direction on what should happen to their property. In that case, the courts take over. |
The purpose of a living will and its importance should not be underestimated. Learn how to write a living will and choose someone as a health care proxy. |
