Archive for January, 2011

Gifting of Medical & Educational Costs

January 31st, 2011

Anyone worried about estate taxes wants to give to their beneficiaries and not have those gifts count against their life-time Estate/Gift tax exclusion of $5,000,000.  Here are some thoughts on that subject.

Each person can give $14,000 to any other person annually and not have that amount count as a taxable gift. This means a married couple can give $26,000 annually to each beneficiary.  The only complication here is that the person receiving the money must be at least 18 years old.  If they are not yet 18, call me – there are ways to make this happen with little or no trouble.

Another way to pass down money gift tax free is to pay the medical costs for your loved ones.  The rule here is that any deductible medical expense paid for a lineal descendent is an income tax deduction by the one paying the bill.  The main rule here is that the bills have to be paid directly to the medical service provider, not to your loved ones.

Also a pass down item is paying the educational costs of a lineal descendent.  While not tax deductible, like medical expenses, the gift is not a taxable gift. These educational expenses must be to a qualified educational institution and must be paid directly by you.

So what is really being achieved by giving these gifts?

You are reducing the value of your estate and saving the 35% estate taxes.

You are helping your kids without giving them the cold hard cash.  What you are doing is allowing them to stretch their hard earned money a little further by relieving them of worrying over medical and educational costs.  No small thing these days!

You are allowing your grandchildren to attend private and church based schools their parents may not be able to afford.

If you have your kids manage a checking account that you fund as needed, you have them do the work and you both get the benefits.

How is this a bad thing?

As always, contact me with your questions.

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Income Tax Advice