Under the 2010 Tax Relief Act, US citizens and residents can gift $13,000 per year to as many people as they want with no gift tax. This is called the annual gift tax exclusion. In addition, a US citizen and resident can gift up to $5,000,000 total during his or her lifetime. This is called the lifetime gift tax exclusion. By the way, the lifetime gift tax exclusion amount will drop to $1,000,000 on January 1, 2013, unless congress and the president do something. Will they do something?
So we’ve been telling our clients with large estates to gift to their children now while the exclusion amount is so high. They can permanently eliminate future estate tax worries if they gift during this $5M gifting window.
However, for foreign nationals, the gift tax exclusion amount for gifts of tangible property (which includes cash in a US bank and real property) is limited to the $13,000 annual gift exclusion. Gifts worth more than that amount will be taxed at 35%. Foreign nationals don’t get the lifetime gift tax exclusion (currently $5M) for gifts of tangible property. Therefore, if you are a foreign national or a foreign national relative or friend wants to make a gift to you of tangible property, make sure you consult an expert on the many strategies available to avoid the very significant gift tax.