When you hear about the federal estate tax, you may wonder if it is possible to give gifts to your children while you are living to avoid the death tax.
This is not a true solution, because there is a federal gift tax in place, and it is applicable on large gifts to your children.
However, there are exclusions, so you can give a certain amount to your children before the gift tax would be a factor.
Annual Gift Tax Exclusion
There is an annual gift tax exclusion. At the present time, the amount of this exclusion is $14,000 per person. You can give any number of gift recipients up to $14,000 within a calendar year free of the gift tax, and this would include your children.
Since this is a per person exclusion, if you are married, you and your spouse could combine your respective exclusions, and you could give up to $28,000 to any number of people within a calendar year without incurring any gift tax exposure.
Unified Lifetime Gift and Estate Tax Exclusion
In addition to the annual gift tax exclusion, there is also a unified lifetime gift and estate tax exclusion. This exclusion applies to taxable gifts that you give during your life along with the value of the estate that you are passing on to your loved ones.
The unified gift and estate tax exclusion is $5.43 million in 2015. You could give tax-free gifts to others that exceed $14,000 per person in a calendar year, but you would be using a portion of your unified lifetime gift and estate tax exclusion to do so.
Educational and Medical Gifts
There are a couple of other ways that you can give tax-free gifts to your children (or anyone else for that matter). Under the tax code, there is an educational gift tax exclusion. You are allowed to pay school tuition for any number of people, equaling any amount of money, free of the gift tax, as long as you are paying the institutions directly.
This is a tuition-only exclusion that does not extend to books, fees, and living expenses.
We also have a medical exclusion that allows you to pay health care expenses for others free of the gift tax, and this would include health care insurance premiums.
Once again, you would have to pay the health care providers directly.
Schedule a Free Consultation
If you have further questions about the gift tax, we would be glad to provide you with answers. Our firm offers free consultations, and we can explain things to you and help you preserve your wealth if you are faced with exposure to transfer taxes.
To set up an appointment, send us a message through this page: Southampton PA Estate Planning Attorneys.
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