Tips To Keep In Mind When A Client Makes Large Gifts To Family While Living

Most people will wait until death before making large transfers of property to family members and other heirs. However, some chose to make gifts during their lifetime so they can take enjoyment from helping a loved one and make sure that the money is going towards the intended cause. But there are several concerns that must be taken into account before gifting including the following:

• Up to $14,000 per year can be given to any one individual with triggering a tax on the gift. This exclusion applies to each giver individually which allows a married couple to each give $14,000 which means a person, such as a child, can essentially take $28,000 per year tax free.
• Direct payments to the providers of medical and dental care or an institute of higher education will not count towards the $14,000 yearly cap. This exclusion does not include any other educational expenses so room, board, and books and will still count if they are bought by a third party.
• Many states have 529 college savings plans which allow up to five years of payments to be made in one year without facing gift taxes. In addition, the plans allow the money to be taken out tax free for educational expenses. However, any payments to a school not by the parents will hurt the ability of the student to receive financial aid in most circumstances so a wise move is to have parents set up the plan but have it funded by the giftor.
  

See Nick Clements, 4 Rules for Giving Your Heirs Money While You’re Alive, Next Avenue, October 2, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.