Much the same as the Estate tax, there are some significant changes coming in the next few years for the Gift tax. I’ve listed out the provisions by year so that you can follow the changes:
Today, the top gift tax rate is 45%. This is assessed on gifts given during your lifetime, with some provisions. You are allowed to give any individual up to $13,000 (2009 limit) per year with no tax considerations. Any amount above that $13,000 annual limit is applied to your lifetime gift tax exclusion, which is $1 million. Any amount above that $1 million is subject to the gift tax.
Spouses are allowed to “split” their gift tax – that is, for a couple, the effective annual exclusion is double the individual amount, or $26,000 for 2009.
The Generation Skipping Transfer Tax (GSTT) applies to any gifts above the annual limit that “skip” a generation. So if you give money to your grandchild (or younger) and it is above the annual limit, it could be subject to the GSTT. There is, however, an exemption on GSTT amounts, which is equal to the Estate tax exemption – which is $3.5 million in 2009.
In 2010, the top gift tax rate is reduced to 35%. As of this writing, the annual exclusion limit and lifetime exemption limits are unchanged from 2009, at $13,000 and $1 million, respectively.
For 2010, the GSTT is repealed, just the same as the Estate tax.
Beginning in 2011, the top gift tax rate is bumped up to 55%. Annual exclusion limits and lifetime exemption limits are unknown at this point, so you can use the 2009 figures for planning purposes.
GSTT returns in 2011, just the same as the Estate tax – with the same lifetime exemption of $1 million.