I’ve been sifting through the proposed 2015 Government Budget and will complete the series in a seven day marathon, an article each day for the next seven days. The tax code is so complex that each bit ranges from applying to most of us, to code so specific, it might hit the top fraction of a percent. So please bare with me if the proposed code changes I’m highlighting have no interest for you.
You may know, the gift tax exclusion permits an individual to gift up to $14,000 each year to another person with no tax consequence. Even if you are not wealthy, when you reach an age that you realize you can’t take it with you, some people like the idea of handing out money to their loved ones each year. In some situations where it’s preferable not to have the recipient gain access to the money until they are adults, or even for adults, when they reach a certain age. This is often accomplished via a trust. The process itself is a bit convoluted. The deposit is made to the trust, and the beneficiary, in theory, is given brief access to the funds, but upon signing (or having their guardian sign) a Crummey Notice Letter, the gift to the trust is considered completed.
The proposed change to the code eliminates some of the paperwork, no more letters to deal with, but caps the gift amount to $50K per year via this method. The normal, real, immediate, $14,000 gifts are not impacted.
My view? This actually simplifies the tax code for many who wish to gift up to $50K per year to a small number of beneficiaries, and avoids the smoke and mirrors of the letter acknowledging the gift. I’m with any rules that help simplify the code.