"Put not your trust in money, but put your money in trust."
Oliver Wendell Holmes, Sr.


Basic Gifting Strategies

Generally, if you give someone money or property during your lifetime, you may be subject to federal gift tax. However, most gifts are not subject to the gift tax. For instance, you can give up to the annual exclusion amount ($13,000 in 2006) to as many individuals as you like, every year, without making a taxable gift, and without the recipients owing an income tax on the gifts. And you can make up to $1,000,000 in taxable gifts above the annual exclusion, total, in your lifetime, before you start owing any federal gift tax (state lifetime exemptions may be lower). Implementing a variety of estate planning techniques can leverage the $1,000,000 exemption. Embarking on a regular gift-giving program can be a very effective way to transfer substantial assets out of your estate, free from gift and estate taxes, to your children or other loved ones. This technique of estate tax planning can drastically reduce your taxable estate, thereby reducing your estate tax liability.

Another basic gifting strategy to reduce your estate is through direct payments of tuition or medical expenses. Direct payments of tuition or medical expenses for another person (regardless whether that other person is related to you) is not a gift for gift tax purposes. Each person has an unlimited exclusion for qualified education and medical expenses. In order to qualify for this exclusion, payments must be made to the school or medical provider directly — not to the person that will be receiving the education or medical benefits.

The following example illustrates this point:

Karen wants to help her sister’s daughter attend medical school. Karen sends the school $30,000 for a year’s tuition. She also sends her niece $13,000 to help with books, supplies and rent. Due to the value of Karen’s gift to her niece falling within the annual exclusion, neither payment is reportable for gift tax purposes. If she had sent her sister $43,000 directly and her sister had paid the school, Karen would have made a taxable gift in the amount of $30,000 ($43,000 less annual exclusion of $13,000) which would have reduced her $1,000,000 lifetime exclusion by $30,000.

If your children and/or grandchildren are incurring tuition and medical costs, you can pay these expenses directly without incurring any gift tax obligation. Over time, this can result in a meaningful reduction of your estate, while helping the people you love.


If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us: sklawyers@skpclaw.com.

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