For example, if you give $14,000 per year to two beneficiaries for five years, you will have removed nearly $140,000 from your estate for estate tax purposes (excluding asset growth). After 10 years, you will have removed more than $280,000. Not surprisingly, the amount removed from your estate is increased significantly with each additional $14,000 beneficiary.
Annual exclusion gifts can also be used to shield transfers to an irrevocable trust from gift and generation-skipping transfer tax. The beneficiary must have the right to withdraw up to $14,000 of the transferred funds, but if that right is not exercised, the gifted funds can then be used to purchase life insurance on the life of the transferor or for other investments. This trust can be a multigenerational estate tax exempt trust or it can become a family ‘bank’ for: (1) education; (2) business acquisitions; or (3) home purchases, among other things.
Medical care and tuition paid to assist family members or any other individual may be made in addition to the annual exclusion gifts. As long as the gifts are made directly to the medical facility or educational institution, donors can exceed the $14,000 annual exclusion amount without imposition of gift taxes.