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Tax Free Gifts

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Each donor may give $14,000 each year to each beneficiary, without any gift tax consequences. (Prior to 2002, this “annual exclusion” was $10,000, and from 2002 to 2005 it was $11,000, from 2006 to 2008 it was $12,000, and from 2009 to 2012 it was $13,000.) In addition, without gift tax, you can pay the school tuition of any other person, and the medical expenses of any other person, as long as these payments are made directly to the school or medical service provider. These gifts don’t use up any part of your lifetime exemption. If these are the only gifts made during a year, they needn’t be reported to the IRS.

Assume that a husband and wife have two children, each of whom is married, and each of whom has two unmarried children. This couple could give away a total of $224,000 each year without using up any part of their lifetime exemption. (Each parent could give $14,000 to each child, each child-in-law, and each grandchild, for a total of eight individual recipients, or $112,000 of gifts for the husband and $112,000 of gifts for the wife.)

A gift will qualify for the $14,000 annual exclusion only if it is a gift of a “present interest.” Generally, this means that these gift must be made outright to the recipient, or (in the case of a person under age 21) to a Custodianship under the Uniform Transfers to Minors Act, or to certain kinds of trusts (typically, a “Crummey Trust”.) It may require that the asset given away be income-producing or currently salable by the recipient.

If you have questions about gifting, contact Anh Tran, an Orange County estate planning attorney at Modern Wealth Law to discuss your issues.

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