by John Darer® CLU ChFC MSSC RSP CLTC
The Washington Free Beacon is making a big to-do about how Barack and Michelle Obama are doing prudent tax planning and taking care of their daughters. (See Obama Family Tax Shelter: First Family Transfers Wealth, Avoids Taxes April 13, 2012) Let’s use it as a reason to provide some useful information about gift tax exclusions.
Since 1932 the gift tax law has contained an annual per-donee** exclusion,designed to”obviate the necessity of keeping an account of and reporting numerous small gifts. In 1932. at its inception the gift tax exclusion was fixed at $5,000.00 per donee per year- “sufficiently large to cover in most cases wedding and Christmas gifts and occasional gifts of relatively small amounts. The allowance was in effect from 1932-1938. For 1939-1942 the amount was reduced to $4,000.00 after it was deemed as unreasonably large”in view of the frequency with which donors are induced by the exemption to build up estates of considerable size for the members of their families”. In 1942, exclusion was reduced to $3,000.00 after Congress acknowledged the administrative difficulties in abolishing the exclusion. Under the Reagan Administration for post 1981 gifts, the amount was increased to $10,000.00 reflect the reduced purchasing power of the dollar (see Joint Committee on Taxation, Explanation of the Economic Recovery Tax Act of 1981 (at 273).
Source:
Bittker, Boris I., “The $10,000 Annual Per-Donee Gift Tax Exclusion” (1983). Yale Law School Faculty Scholarship Series Page 2305.
Since 1981 the annual per donee gift tax exclusion limits have been as follows:
1981-2001 $10,000.00
2002-2005 $11,000.00
2006-2008 $12,000.00
2009-2012 $13,000.00
The Washington Free Beacon article reported that the “Obama Family Tax Shelter” harbored $48,000 from gift taxes. The Obama’s have two daughters, Sasha and Malia. The President and Mrs. Obama each made gifts of $12,000 per child. Yet at $13,000 per donee in 2011, that’s $52,000 that the Obamas could have taken. But they only availed themselves of $48,000. No explanation was provided why the Obamas didn’t go for the full $52,000. The article also failed to,mention that the Obamas also donated a total of $172,130 to various charities, the largest of which was $117,130 to Fisher House Foundation (Source: Tax Return of Barack Obama and Michelle Obama Whitehouse.gov).
While the article flames that “the Obama’s untaxed gift to their daughters will leave American taxpayers to subsidize the college education of the children of the multi-millionaire Obamas”, the fact remains that the annual gift tax exclusion taken by the Obamas is available to all. Also bear in mind that gifts made to Sasha and Malia are after income tax gifts.You can’t claim a federal income tax deduction for contributions you make to your 529 plan for your kid’s college (you might get one from your state), or for a general gift to the kids .
The annual gift tax exclusion is beneficial to help parents provide for children with special needs after their death. The parents can use the power and leverage of life insurance in a trust to provide a source of funding and help mitigate the impact of the cost of insurance with the gift tax exclusions.
** a donee is the recipient of a gift
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