Gifting is often used as an estate planning tool.  The favorable tax treatments make it not only useful but desirable.  When using gifting as an estate planning tool, you get the added bonus of being able to watch your loved ones enjoy part of their inheritance while you are still alive.  It is important however, to understand the rules and limitations of this tool.

  1. There is an Annual Gift Tax Exclusion

The annual gift tax exclusion is adjusted for inflation and is the amount of money or property you can give to each person of your choosing without being taxed.  The exclusion amount for 2017 is $14,000.  This means that you can give $14,000 to each of your children or grandchildren without being taxed.


  1. Gifts to Spouses Don’t Count

The gift tax exclusion is for anyone that you gift to other than your spouse.  Spouses use what is called a marital deduction which allows for unlimited transfers between spouses without being taxed.


  1. Medical and Educational Gifts Don’t Count

Any payments made for educational expenses do not count toward the annual limit on gifting.  This means you could make a payment to a college fund or medical facility for a child or grandchild and also give them a separate gift of $14,000.  The payment must be made directly to a qualifying education or medical center or plan.


  1. You Can Give Twice as Much if You’re Married


Each spouse can give up to $14,000 to the same individual without incurring gift tax for a total of $28,000.  It is a good idea to give the gift separately for tax and accounting purposes.


  1. You May Still Have to File a Gift Tax Return

If you gift an individual an amount over the annual gift tax exclusion, you may have to file a form 709.  There are instances where even if you gift under the exclusion amount you still need to file it with your taxes so it is always best to check with your CPA.


While gifting can be a very useful tool in an estate plan, as always, we recommend consulting with a qualified estate planning attorney.