I received the following question (and many others of a similar nature):
"My husband tore out an article you wrote for the Farm Journal advising that it was possible to gift $ 400,000 in value per year. How is this possible when the gift tax exemption is $ 14,000? Assuming husband and wife each gifted $ 14,000, that equals $ 28,000 for the year. "
One of the key components of gifting property annually is that the current $14,000 gift exemption is per donee (the person receiving the gift) not per donor (the person making the gift). In the question, it refers to the husband and wife each gifting $14,000 to equal $28,000 which is a long ways from $400,000.
How I arrive at the $400,000 level is that I am assuming that a husband and wife have 3 children, plus spouses plus 6 grandchildren. This results in 12 people who the husband and wife can each gift $14,000 during the year. The husband can gift $168,000 and the wife can gift $168,000 equaling total annual gifts of $336,000. This number is still short of $400,000, however, if the gift is of units in a limited liability entity (LLE), we can apply a discount usually ranging between 20 and 40%. Let's assume the discount is 30%. If we divide $336,000 by .7 (1-.3), we arrive at total gross value gifts of $480,000.
This is one way of gifting over $400,000 per year without using up any of your lifetime exclusion ($5.34 million in 2014 and $5.43 million in 2015). Assuming the parents have enough children and grandchildren, it is fairly easy to gift more than $400,000 of value each year. Even with a couple of children and grandchildren, it is certainly more than $28,000 per year.
As an agribusiness CPA and business adviser for CliftonLarsonAllen, Paul specializes in income taxation and accounting for the farm community. Email him at firstname.lastname@example.org
For more tax information and advice, read Neiffer's blog: The Farm CPA