Lifetime Gifting
A Legal Moment

Gift Tax Basics for 2014

   Lifetime Gifting can be an Important Tool in Estate Planning

   Whether part of a lifetime giving plan, or a spontaneous burst of generosity, gifts by individuals are subject to federal gift tax rules – as well as any applicable state gift tax rules.  This article presents some basic, general rules about the taxation of North Carolina gifts in 2014.

   A “Gift tax” is a tax levied on the gratuitous transfer of property from a gift-giver (“donor”) to a gift recipient (“donee”).  North Carolina abolished its gift tax as of 2009, so for North Carolina gifts, only federal rules of gift taxation need be considered.

   Payment of federal gift tax is the responsibility of the donor, and is computed and collected annually, with the return due April 15th following the year of the gift. The federal gift tax rate for 2014 is set at 40%, but because of various exclusion rules, it can often be avoided.  In fact, many gifts to, and payments on behalf of, another can be made without having to pay any federal gift tax at all.  

   The following are some general rules about the federal taxation of gifts in 2014.  

Annual Exclusion Gifts & Spousal Gifts

   Under federal gift tax law, each person is allowed to give an unlimited number of “annual exclusion gifts” in the amount of $14,000 per donee during calendar year 2014.  (Generally, married couples can together give $28,000 per donee.)  Further, a person may give an unlimited amount to his or her spouse by using the “unlimited gift tax marital deduction,” as long as the spouse is a U.S. citizen.  If the spouse is not a U.S. citizen, gift tax-free transfers to the spouse are limited instead to a “super annual exclusion gift amount,” which for 2014 is $145,000.  

   Generally, none of the foregoing gifts requires the filing of a federal gift tax return, except in the case of a married couple giving more than $14,000 to a donee where one of the couple is joining in the gift of the other (“gift-splitting”), rather than making a direct gift to the donee.  Annual exclusion gifts must be the transfer of a “present interest” – the most obvious example being cash – as opposed to a transfer of a future interest such as reversions or remainders in real property.  If a spousal gift is a transfer of a type of interest that terminates rather than going outright to the spouse – for example, property in trust that is only available to the spouse during the spouse’s lifetime – the interest must be a “qualified terminable interest” for the unlimited marital deduction to apply.

Unified Exclusion Amount  

   The limits set out above with respect to non-spouse donees and non-citizen spouses draw a line above which it becomes necessary to file a Gift Tax Return (Form 709) to avoid gift tax.  Gifts in excess of $14,000 per non-spouse donee and $145,000 for a non-citizen spouse, respectively, can be made during calendar year 2014 without owing gift tax if the donor files a Form 709 and elects to use part of the donor’s unused unified lifetime estate and gift tax exclusion amount to cover the overage.  For 2014, this exclusion amount is $5.34 million.  That is up from $5.25 million in 2013 – and a long way from the $1 million cap in place as recently as 2003.  The Form 709 is the mechanism by which this important election is made.

Charitable Gifts  

   Gifts to qualified charities may generally be made in unlimited amounts, gift tax-free.  (Likewise, gifts to political organizations are generally tax-free.)

Direct Payments of Tuition and Medical Care  

   In addition to the tax-free gifts outlined above, certain direct payments made on behalf of another are not considered “gifts” and may be made in unlimited amounts. These include direct payments on behalf of another person to educational institutions for tuition and to medical providers for medical care.  These payments must be made directly to the institutions or providers (if reimbursed to the other person, they become “gifts” subject to the gift tax rules above.)

Note: This article provides generalizations only, and is not intended to address any particular gifting situation.  There are a number of complexities surrounding certain gifts which are not addressed here.  Moreover, the topic of income tax as it relates to gifts is beyond the scope of this article, but can also be a consideration for some gifts.  (An example: While a donee’s basis in inherited real estate generally is a “stepped-up basis” equal to the fair market value of the property at the time of the donor’s death, the donee’s basis in the same real estate gifted during the donor’s lifetime is a “transferred basis” equal to the donor’s basis at the time of the gift.  For highly appreciated property, this may be an important consideration in the timing of a transfer.)  The bottom-line is that you should consult your tax advisor with respect to any particular gift contemplated.


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Gay Vinson is an attorney at Marshall, Roth & Gregory, PC. Her practice is concentrated in trust and estate planning and administration.
   Feel free to contact Gay ( to receive more information on this topic or to suggest topics for future editions of 'A Legal Moment'.  Or visit our firm's website.

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You may not rely on this content as legal advice for any specific situation, but should instead contact an attorney for specific advice.
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