Twice Blessed Tax Exclusion
By Peter Cook
“The quality of mercy is not strain’d,
It droppeth as the gentle rain from heaven
Upon the place beneath: it is twice blest;
It blesseth him that gives and him that takes:..”
– William Shakespeare, The Merchant of Venice
It’s safe to assume that William Shakespeare did not have the U.S. tax code in mind when he penned this famous praise of mercy. Indeed, one of the few things known for certain about Shakespeare the man is that he did his utmost to avoid taxes. Given his love mercy and loathing of taxes, Shakespeare, were he alive today, would undoubtedly be a savvy and appreciative user of the IRS’s annual gift tax exclusion.
The annual gift tax exclusion specifies the amount money or value of assets you can give to someone without the gift being subject to federal gift tax. As of 2017, the amount is $14,000 for an individual per recipient. The excluded amount rises to $28,000 per recipient for jointly owned assets gifted by a married couple. At first glance, these amounts may not seem large relative to an individual’s or to a married couple’s total estate. Over time however, these exclusions become a powerful tool for transferring assets to loved ones in a tax efficient manner.
Take for example a couple with substantial assets and three children. If they were to gift each child the 2017 maximum of $28,000 for 10 years, they would be able to transfer a total of approximately $840,000. This is value that would have otherwise been included in their estate and taxed at up to 40%. That’s $336,000 in tax savings—real money. It’s also worth noting that while the tax-exempt amount you are allowed to give per individual donee has a yearly maximum, the number of individuals to whom you gift each year does not. Thus the larger the number of children and grandchildren you have, the greater your ability to save.
Shakespeare wrote that those who give are twice blessed. Today the tax code has added a third virtue. Consequently, the act of giving is now thrice blessed; it blesses by the giving, by the getting and by the avoiding of tax. At WhiteTree we work with your tax professionals to ensure this same trifecta accrues to you, your beneficiaries and not, to the legal extent possible, the tax authorities.
Disclosure: The above article does not constitute a recommendation or advice with respect to taxes. Please contact a licensed tax professional before taking any actions related to gifts or investments. While the information presented herein is believed to be accurate, WhiteTree Investment Management LLC (WhiteTree) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. WhiteTree is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities.
Mr. Peter Cook, CFA ® , CFP ® is the founder and manager of WhiteTree Investment Management, registered investment advisor located in Mount Kisco, NY. He previously held positions TD Securities and Credit Suisse in the Fixed Income and Private Banking divisions.
*Bryson, B. (2016). Shakespeare: the world as stage. New York: Atlas Books.
*Small Business/Self-Employed Topics. (n.d.). Retrieved June 12, 2017, from https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
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