Kevin McCormally: I am Kevin McCormally of Kiplinger's, and I am here with Mary Beth Franklin, Senior Editor of Kiplinger's Personal Finance magazine to talk about the federal gift tax. Mary Beth, it seems like Congress wants to tax everything, now they want to tax me when I give my money away.
Mary Beth Franklin: Well, technically yes, but you know what, you've probably never paid the gift tax and you probably never will.
Kevin McCormally: And why is that?
Mary Beth Franklin: Well, the limits are so high. For example, you can give away $12,000 to an individual and as many individuals as you want this year and never trigger the gift tax.
Kevin McCormally: So what's the point?
Mary Beth Franklin: The point is to make sure people don't give away all their money before they die as a way to avoid the estate tax.
Kevin McCormally: Okay. Explain me how this works?
Mary Beth Franklin: Well, let's say, I have 1000 friends and I give each one of them $12,000. That's $12 million I can give away without triggering the gift tax.
Kevin McCormally: And that's legal.
Mary Beth Franklin: That is legal, but let's say, I left that same $12 million in my will, that would trigger an enormous estate tax.
Kevin McCormally: What happens if I give away more than $12,000?
Mary Beth Franklin: Then you get into the next level of the gift tax. If you exceed the $12,000, then you start eating into this lifetime exclusion, that says you can give away up to million dollars in gifts over your lifetime. Once you bridge that million dollar level, then you get into the big tax. The estate tax and gift tax is 45% of what you give away over that limit.
Kevin McCormally: That $12,000 to any number of people, I am safe. It's only after that level, I get a million dollars more and then the government wants to tax my gifts.
Mary Beth Franklin: Right and the other thing is, if you're married, you and your spouse together can give away $24,000 at a shot, which is a great way to fund the grandchildren's college.
Kevin McCormally: Okay. Thank you very much.
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