Gifting Rules - Do's and Don'ts

When we hear the word "gifting," you think of common everyday gifts for birthdays, Christmas and the like, yes? Things can get a bit more complicated if you are looking gift something more than a sweater. 

No, real gifting (i.e., wealth transfers) take a little more understanding and planning.

In certain states, for example, the estate exemption is just $1 million, not the $5 million (indexed for inflation) as at the federal level.

Consequently, CBS Boston's recent posting, titled “All About Gifting Assets,” warns you should have a good estate planning attorney help you safely navigate the state and federal tax rules.

Did you know the annual gift exclusion for anyone is $14,000. That means you can transfer this amount this year (and then next) to as many recipients as you want, provided you have the money to make the gifts.

If married and your spouse joins in, then you can gift a total of $28,000. In addtion, you can pay medical or school bills for any individual and not incur a gift tax if handled properly. In other words, such “gifts” are not counted toward that gift exemption amount.

Taking advantage of these opportunities is a great idea. Why not give away some money to help your next generation accomplish its goals? For instance, if you have an estate worth $1.2 million, there will be no federal estate taxes but (depending on where you live) some state estate taxes. Would you rather give it away to your family or to the government?

If any of your grandchildren are in college or graduate school you can pay their tuition and medical insurance, but you need to pay it directly to the school or insurance company. And after paying the bills (if you still have some money left), you can still hand over a check to them for $14,000, or with your spouse, you can make it $28,000.

As the original article counsels, be sure to seek appropriate legal advice before making transfers valued more than customary gifts during the year.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: CBS Boston (November 26, 2014) “All About Gifting Assets”