A gift tax is imposed on certain transfers (“taxable gifts”) during the life of the donor. The tax is payable by the person making the taxable gift, not the recipient. For 2011 and 2012, the gift tax exemption level is the same as the federal estate tax level of $5.0 million and with a tax rate of thirty-five percent (35%) for taxable gifts above that amount. The combined Connecticut estate and gift tax exemption amount has been reduced to $2,000,000, retroactive to January 1, 2011. Any exemption used by a taxpayer during life (for gifts made on or after January 1, 2005) reduces the amount of his or her estate tax exemption available at death.
A “taxable gift” does not occur as long as the amount gifted to any one recipient is less than $13,000.00 (in 2011). For example, if Sally and Joe have five children, they can give each child $26,000.00 in 2011 without those gifts being “taxable gifts”. When planning, it is important to remember that certain payments toward qualifying educational institutions, or certain payments made directly for another’s medical care can be made without being considered taxable gifts.