Gifting as an Estate Planning Tool

Person being handed a house

The annual Exclusion for 2014 is $14,000 and is indexed for inflation so it will increase in the future. The person making the gift is the donor and the recipient of the gift is known as the donee. The donee never pays income tax on any gifts received because the Internal Revenue Code Section 102 specifically excludes gifts from income. If you have a large estate and want to use gifting to reduce your estate or inheritance tax you may want to consider one or all of the following strategies:

  • You can gift up to $14,000 in 2014 to any individual or you can make a joint gift with your spouse of $28,000 per year per person without affecting your $5.34 million estate tax exemption or unified credit. Keep in mind if you decide to gift a larger amount than the annual exclusion you can file a form 709 gift tax return and use up some of your $5.34 Million estate exemption.
  • You can also pay a donee’s tuition directly to the school which would not count toward the $14,000 annual exclusion.
  • If you pay a donee’s medical bills directly to the hospital or health care provider which also would not count toward the $14,000 annual exclusion.
  • You can also donate to a donee’s 529 College Savings Plan and give $70,000 individually or $140,000 with your spouse to make a joint gift to reduce your estate. However, if you give the maximum it wipes out your annual exclusion for that specific donee for the next 5 years. You can also change the donee in the future if that donee decides not to attend college. If the donee does attend college the amount withdrawn from the 529 plan to pay for tuition, books and fees are free of income tax.
  • If you have your own corporation or limited liability company (LLC) and you have a child or relative who works in the business, you can gift non-voting shares of the corporation or non- voting units of the LLC to that person over time but maintain control since you own all the voting shares.
  • If you have any questions about any of the gifting strategies listed above, feel free to contact Gregory J. Spadea at 610-521-0604. Gregory is the managing member of Spadea & Associates, LLC located in Ridley Park, Pennsylvania.

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