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Wonderful Gift Giver – Taxed or Not By

By: Attorney Katherine S. Breckenridge, Esq.

Published December 1, 2019

Estate Planning: Wonderful Gift Giver – Taxed or Not By

The blaring, invasive alert sounded – demanding a response. Dining room chairs were shoved out-of-the-way. Not a word was ushered. The focus of the law enforcement officers immediately became intent on an undeterred response to help someone in need. The officers rushed to their cars, and with sirens warning others of the seriousness of their need for an undeterred route, they proceeded to the scene. Just like that the festivities of the holiday meal came to an end.

As the officers, most of them who I had just met that day, carried out their duty, I was left with a sense of gratitude to these brave individuals who give a gift of protection to our community 24/7, and unbeknownst to them, gave my family the gift of friendship and fellowship during a special holiday time.

In recent years, the transition from Thanksgiving to Christmas seems to be a blend of time without definition. Most of us have seen Christmas decorations marketed in stores since Halloween. Somewhere along the way, I was persuaded that enjoying Christmas decorations in November is appropriate, and I admit to having had not just one, but two Christmas trees gracing the house in time for Thanksgiving dinner this year.

Though many may have enjoyed Christmas decorations during Thanksgiving, it does seem that the art of gift giving is still reserved for Christmas, albeit the shopping for such gift giving encroaches on the very day reserved for Thanksgiving.

Eat and eat some more, then don your coat and rush to participate in the much-advertised Black Friday sales. With coffee in hand, my daughter and I braved the madding crowds and window-shopped. I take that back, I did purchase one item on Black Friday – a box of dog biscuits, because . . . well, I have two furry loves. Priorities!

Enjoying conversations along the way and observing the lengthy check-out lines from a distance, by the time I returned home, the reflections on gift giving took center stage in my thoughts. Not the gifts that fit into shopping bags, but gifts of greater proportion.

Law enforcement officers give immeasurably. The more I understand about the profession, the more its uniqueness in its requirements of commitment, skill, acumen, and selflessness are revealed. How fortunate we are as a community to be the recipient of gifts that permit a maintenance of law and order so that we in turn can gift to others from our own talents.

There are those in our community who have the talents of farming and baking and give provision to those in need, the understanding of automobiles and offer to get one safely from points A to B, a green thumb and work to keep one’s grass presentable, and plumbing and electrical skills and offer to keep the mechanics of a house in order. And, those who have the talents of counsel – whether legal, spiritual, financial, safety, education, or physical and mental health, and give in a manner that provides another with a healthy and balanced life.

The gifts given by all of the above to so many in our community who are in need, are often given without fanfare – no one is aware, but the receiver. However, it is those gifts that are sustaining to many during the rough valleys of life.

How humbling for one who is usually the gift giver to be in the position of receiver. It is from that understanding that I pray for those in law enforcement and those who are the givers of their talents that God’s protection surrounds them. Proverbs 18:16 (NIV) states, “A gift opens the way and ushers the giver into the presence of the great.” I pray those givers receive such a blessing.

Reflecting on the talented and generous within our community, as usual, my thoughts turned to my own profession and I began considering gift giving through the lens of an estate planning attorney.

What about those gifts that one would like to give to another during life? Not the giving of a gift of our labor, but of portions of the money we earn from such labor or an uncompensated transfer of an interest in an asset.

The Commonwealth of Virginia does not impose a tax on gifts (or an inheritance from an estate). However, there is a federal gift tax that in its aggregate shares the federal estate tax exemption. The federal gift tax is an accumulation of the gifting amounts given above the annual exclusion amount during life that exceed the exemption limit.

In the year 2020, the exemption limit is set at $11.58 million per person. The concept is that when gifting, the giver will either pay a tax on that gift if given during the life of the giver, or defer such tax payment until death, or will pay a tax on that gift if given at the time of death. The old estate planning reference of, “you can’t outrun your creditors,” holds true regarding the taxing of gifts – pay now or later.

The giver is permitted a yearly exclusion on the giving of money or an uncompensated asset transfer. In the year 2020, the exclusion remains at $15,000 that can be given by an individual to an unlimited number of persons. For example, an individual may give $15,000 to her daughter, $15,000 to her sister, and $15,000 to mother within the same year. In 2020, each of those gifts falls within the federal exclusion. If the same individual gave $25,000 to her daughter in 2020, whether in money or an uncompensated transfer of the full value of an asset, $15,000 is considered excluded and $10,000 will be taxed; said tax paid by the giver.

The amount in excess of the $15,000 gift, in the above case the $10,000, will be payable in that year or the giver may choose to have the $10,000 count against her federal gift tax exemption – thus, reduce her federal gift tax exemption.

Therefore, if an individual chooses to not pay the tax on the excess of the exclusion amount within that year of the “gift giving,” the value of her lifetime gifts above the exclusion in which the tax remains unpaid will reduce the amount of exemption she has remaining. The reduction carries forward and upon the death of the giver, the reduction is now borne by the estate of the decedent in what will be titled the federal estate tax exemption.

In the year 2020, spouses can both give $15,000 to an individual, for a total of $30,000, and the amount will meet the annual exclusion requirements. And, spouses can have a total federal estate tax exemption in 2020 of $23.16 million if the survivor, on the first to pass, claims the unused exemption of the decedent through the concept of portability.

The above figures may seem out-of-reach or beyond comprehension to most of us. Whether you have much in the means of assets or have little, I encourage you, while you have the capacity to make decisions about your care and about your assets, have a conversation with a CPA, a financial advisor, and an estate planning attorney. Make sure you know where your estate portfolio stands and the projections of what it may look like at the time of your death.

The framework set forth in the Code of Virginia and the Regulations of the IRS regarding the administration of our estates during and after life sets parameters for the measurable gift giving of assets. The giving and receiving of such assets are often extremely important to both parties.

In addition to those gifts that are measurable, I submit that it is the actions of those who sacrificially give of their talents – the giving of which may go unnoticed by most, but provide the gift of hope to those in need and continue to keep our community strong.

In Psalm 3:5 (NIV) The promise is made, “I lie down and sleep; I wake again, because the Lord sustains me.” Perhaps it is through those in our community who recognize a need in others and who meet such a need by giving of their talents, providing hope in the valleys of life, that God is sustaining that individual – the you, the me, the community. Merry Christmas – each and every day.