Q: How does the lifetime gift tax exclusion work?

by | Mar 30, 2022 | Estate Planning, Q&A |

A: On top of the $16,000 annual exclusion, each person also gets a $12.06 million lifetime exclusion (married couples can exclude double that amount in lifetime gifts). Everything over the annual exclusion amount spills over into the lifetime exclusion bucket. For example, if you give your brother $50,000 this year, you’ll use up your $16,000 annual exclusion, and you’ll need to file a gift tax return; however, you probably won’t pay a gift tax. Why? Because the extra $34,000 ($50,000 – $16,000) simply counts against your lifetime exclusion. Next year, if you give your brother another $50,000, the same thing happens: you use up your annual exclusion and whittle away another portion of your lifetime exclusion.