Gifting Strategies

Gift Tax Exclusions

There are four very important exclusions to the gift tax that allow you to make tax-free lifetime transfers without ever using your gift tax applicable credit amount. By doing so, your estate is reduced when you die, and your family ends up with cumulatively more assets. Whenever you save estate taxes, you are giving more to your family or to other parties and less to the government.

Gifts To Charities

You are generally allowed to give an unlimited amount to qualified charities and not incur any gift tax or estate tax on those transfers.

Gifts To A Spouse

You can give an unlimited amount of gifts each year to your spouse free of gift tax. Special limits apply if your spouse is not a U.S. citizen.

CAUTION: If you plan to give your spouse a gift using a trust, or if his or her right to use the gifted property will terminate upon a specific event or at a specific time, you may not get an exemption from gift tax. Speak to your attorney or other estate planning professional about this before you actually transfer the property into the trust.

Gifts For Medical Or Educational Expenses

You can give an unlimited amount to pay someone’s medical or educational expenses. These transfers must be made directly to the institution and not to the beneficiary. In the case of educational expenses, only payments for tuition are covered for this exemption (payment for books or room and board is not covered). Medical expenses that are reimbursed by insurance are not eligible for this exemption.

Annual Exclusion Gifts

Every person is allowed to give any individual up to $12,000 a year in gifts (indexed for inflation in $1,000 increments). This is called your Annual Exclusion. You can give $12,000 to one hundred different people each year and have all the gifts covered under this exclusion. You are not allowed to carry over an annual exclusion from one year to the next. Example - You cannot give your sister $24,000 this year and claim a full annual exclusion because you did not give her anything last year.

Gifts that qualify for the annual exclusion must be present interest gifts versus gifts of a "future interest". This means the recipient must be able to use the assets immediately, versus restricting their "present use", for example, by putting the assets in a trust for future transfer. However, there are methods of qualifying gifts in trust for the annual exclusion, e.g. a Section 2503 (b) trust established for a minor. Ask your estate planning professional for a more detailed explanation of these exceptions.