Many people are aware that they can make an annual $15,000 gift (although most people think of it as a yearly $10,000 gift), called the Annual Exclusion, but they are unclear as to the details. So here they are:
An individual (the Donor) may give an annual gift to another individual (the Beneficiary) without that gift being a taxable event for either the giver or the receiver. A husband and a wife can each give $15,000 to a particular individual without it being taxable to any party.
You can make as many $15,000 gifts to as many individuals as you want in a calendar year. For example, if in a particular year you wanted to give each of your 3 children $15,000 each, you could do so. Your spouse could also give $15,000 as well to each child. A Beneficiary doesn’t have to be a child (it could be a friend, a grandchild, etc.), although the Beneficiary often is.
The purpose of this annual gift/s is to be able to pass on some of your estate assets during your life (so your Beneficiaries may enjoy them) without them counting against your estate tax cap (the amount you can leave estate tax free at your death). For 2019 and beyond, the state estate cap for Massachusetts is one million dollars (and will probably stay at that level). The federal government cap is $5 million but its status in the future is unclear at this time. A caveat, however, on these potential gifts: if your estate is below these thresholds, there may be no benefit in making these gifts and they may be viewed as disqualifying transfers for Medicaid eligibility for nursing home consideration.
Roger Levine is an Estate & Elder Law Attorney with offices in Canton & Brockton Massachusetts