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Gifting – a great Tax Saving Idea

Are you one of the people (or child of a person) who has “too much” money?  Some of my clients go as far as to call it “the problem” of having too much money.  Yes, it’s true many people just have too much money and Uncle Sam is waiting for you to die!  As I type this the Senate is hotly debating what to do with the estate tax exemption. For the time being we are at $3.5m per person.  Could they raise it? Yes. Could they lower it?  Sure. Could they keep it at $3.5m? Sure.  I would say anything is possible. However, if you have money, that might be taxed after you die, and you don’t need the money, let’s talk about your gifting program ASAP!

The simplest way to gift to your kids, or other loved ones, is by writing a check. You can currently give up to $13,000 per year to any one person you like. Additionally, you can make even larger gifts to charity which quality for a charitable deduction but we will talk about that another day. Back to the annual gifting… you can give up to $13,000 in assets during each calendar year. This means that a husband and wife can, collectively, give each child $26,000 per year. This means a husband and wife with two children can gift $52,000 per year. This means that a husband and wife, with two children and four grandchildren can gift $156,000 per year… TAX FREE!

If you have a large estate and have not yet given your loved ones any gifts this year break out that checkbook fast!  Let me make a suggestion… while you are in the checkbook why don’t you also write some gifting checks dated January 1, 2010!?

The earlier in the year you make the gift the better.  Yes, you could die and then lose the ability to gift for the year. However, I was actually referring to the fact that getting the money into your kid’s names means it will be growing in their estate rather than yours. If you already have a tax problem don’t make the problem worse. At close to 50% the estate tax is no joke. Every dollar you fail to give away might only be worth 50 cents at death. GIVE, GIVE, GIVE!

Can you use your $13,000 per year annual exemptions AHEAD of time?  Of course not, right?  Well, actually you can!  If you give money to a 529 college savings account you can use the next 5 years worth of gifts. You thus could write a check the week after each grandchild is born for $130,000. That money would have 18 years to grow for the grandkids and then pay out without tax under current law… as long as it’s used for educational expenses. WOW! That’s some bang for your gifting buck right there! I had one client do the five year front load for 8 grandkids. They wrote checks for about a million dollars in one day. That is some smart estate planning!

If you don’t have loved ones to give to then I really encourage you to consider giving to charities.  Even better than giving to loved ones, when you give to charity you get a tax deduction! You thus have reduced your estate size and lowered your current income tax bill!  Plus, you have helped people in need by carefully selecting the charity you give to.

Keep checking back as we will update you when the folks in DC figure out what they want to do with the estate tax rules. Knowing politicians I am sure it will be some creative idea they come up with!

Happy holidays to you and yours.