Pat and John want to reduce the size of their by gifting their four grandchildren and two children the maximum tax free amount per year for the next five years.How much can they reduce their taxable estate by over this five years?

Question

Quizplus · Accepted Answer

As of 2021, the maximum tax-free annual gift amount is $15,000 per recipient. If Pat and John gift this amount to each of their six family members (4 grandchildren and 2 children), they will reduce their taxable estate by $90,000 each year ($15,000 x 6). Over five years, this adds up to a reduction of $450,000. However, the question asks for the maximum amount they can reduce their taxable estate by, so we need to remember that there is also a lifetime gift tax exemption (which is currently $11.7 million). Therefore, they can actually gift up to $11.7 million over their lifetime without incurring gift taxes. This means that even if they gift $90,000 per year to their family members, they will still have a significant amount of lifetime gift tax exemption left over. Thus, they can reduce their taxable estate by the full $450,000 over the five years without worrying about gift taxes. Therefore, the correct answer is C.

Pat and John Want to Reduce the Size of Their