Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I live in Tennessee.  I’ve heard that new federal gift tax rules allow a person to give away up to $5 million to family during my lifetime without having to pay gift taxes.  Is that right?

Answer: The federal estate tax and federal gift tax exemptions are unified.  That means that there’s currently a $5 million exemption that can be used either during lifetime (against taxable gifts) or at death (against a taxable estate transfer).  If the exemption is used during lifetime, it’s not available at death.

The rules are scheduled to change at the end of 2012, so many experts are recommending that affluent people consider making sizable gifts to family members, to take full advantage of the exemption.  Experts are worried that the exemption might be reduced to something less than $5 million beginning in 2013.

The problem with a Tennessee resident making a gift of $5 million is that Tennessee is one of the few states that imposes a state gift tax on gifts made by its residents.  A $5 million gift by a Tennessee resident to that person’s children will get hit with Tennessee gift taxes of about $450,000.

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