Each year US citizens may make “annual exclusion” gifts under Internal Revenue Code § 2503(b). In 2020, the amount an individual can pass without using any of his or her exclusion from estate and gift tax is $15,000, or $30,000 for a married couple. Individuals can make annual exclusion gifts to an unlimited number of recipients. If the gift is being made to a minor, the individual making the gift (the “donor”) should make the gift through a trust, a Uniform Transfers to Minors Act custodianship or some other mechanism for holding assets for the benefit of the minor.

If a donor does not make any gifts that exceed the annual exclusion in a given year, it is not necessary for the individual to file a Gift Tax Return, IRS Form 709. However, there are times when a donor or may choose to file a Gift Tax Return even if the donor believes the value of the gift does not exceed the annual exclusion limitation. For example, if the value of the gift is uncertain or if the donor is taking a valuation discount, it may be prudent to file a Gift Tax Return. The filing of a Gift Tax Return causes a three-year limitations period to begin running. If the donor files a Gift Tax Return, the IRS has three years during which it can question the value of the gift. If the donor does not file a Gift Tax Return, there is no limitation on the period during which the IRS can question and reassess the value of the gift.

Please contact Judy Layne in the Troy, Michigan office at (248) 433-7563, or any member Dickinson Wright’s Estate Planning and Trusts group for more information.