I met with some clients recently with one daughter who really racked up the degrees and the attending college/grad school expenses with them. In their estate plan, these clients have provided for their other daughter to get a cash distribution "off the top" to even things out before division into equal inheritance shares.
Today, however, they wanted to know how to "even things out" with gifts right now without paying gift taxes.
Like many Americans, these clients were confused on the current "annual gift exclusion" amount (they thought the amount was still $10,000 instead of $14,000) and legitimate ways to leverage the gifts (they thought it had to be to one's own children and grandchildren).
They often wonder if they can do so without having to pay taxes on their gifts.
In fact, one such parent recently wrote to Money and asked if he could give $15,000 to a child to pay off the child's debt.
The answer, given in a Money article titled "When Does a Gift Trigger a Tax Bill?," contains a good explanation of the basics of the gift tax.
As the article explains, you can give up to $14,000 a year to any one individual without triggering the gift tax. You can also give up to $5.43 million in total gifts during your lifetime, but the amount of your "taxable gifts" directly reduces the amount you can leave in your estate at death.
For married couples those numbers are doubled.
It is important to note that more can be given to pay tuition or medical expenses.
Gifts for those purposes are always tax-free, but only if paid directly to the service provider and not channeled through the person benefiting.
If you need to give more than the annual gift exclusion amount to a child, you might be able to if your child is married. You can give $14,000 to your child and up to another $14,000 to your child's spouse.
This is the counsel I gave to my clients wanting to even things out now.
If you have other questions about the gift tax or want to know how making gifts can be integrated into your estate plan, speak with an experienced estate planning attorney.
Reference: Money (May 5, 2015) "When Does a Gift Trigger a Tax Bill?"