If assumption about the estate tax being on the state rather than federal level is correct (likely, as the current Fed. individual exemption $13+MM but anticipated to decrease to $5 - 6 MM in 2026), key here is that only a very few states which have their own estate/inheritance tax also have a gift tax, so giving "it" away in states with no gift tax gets "it" out of the estate without transfer tax. The "it" can be life insurance purchased by for for the benefit of (i.e. owned in a properly drafted trust) the client's heirs, financed by a single net of tax surrender value of the annuity or by the net of tax payment of annuitization distributions. But your client will probably have to be in above average health at his age to get much leverage. Or the "it" can just be the annuity itself (which will trigger the unrecognized gain but reduce the estate by both the value of the annuity and the tax on the gain). Or the "it" can be the net value of the surrendered annuity. Unless client has used up all or a ton of his federal exemption, no reason to worry about the $18K "gift of a present interest" exclusion or Crummey letters. By the way, if client is married and spouse is younger and healthy, might get more leverage with premium applied to a survivorship policy than single life.
LI/other options
- Thread starter ValeRosso
- Start date
- 4,983
Can you elaborate?
It is my understanding, to give more than 18k per year per gift recipient, you must file an estate tax return to take part of your lifetime exemption. Last I had heard, all estate tax returns are audited. Meaning you have to pay CPA to file the return to use lifetime exemption & also pay for audit process.
Wouldn't it make more sense to stay below 18k (36k split gifts with spouse) per year to avoid the estate tax return while alive, unless you have no other way to give. IE: people trying to utilize the 27M lifetime before it goes away next year.
Also, doesn't gifting 18k/36k annually to say 4-5 beneficiaries for a decade allow you to get even more money out of your estate by maxing out annual gifting in addition to the exemption at death amount
