Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Directions
Newsletter Sign-up
Site Search
Site Map
Home
Tell A Friend About This Website
 
 
 
Informational Booklets   
Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

Ease Pressure On Loved Ones With Tax-Free Gifts

Today’s severe economic crisis is taking its toll on virtually every segment of the population. Young newlyweds are finding it difficult to set aside funds for the down payment on a home, despite the now lower prices. Middle-aged parents are struggling to make ends meet and still squirrel away cash for their children’s college costs. And older workers and retirees have seen their nest eggs eroded by the recent stock market downturn.

If you’ve been fortunate (and foresighted) enough to escape major damage to your own finances, you may want to consider helping family members overcome economic hurdles. Providing tax-free gifts could improve their situations while benefiting your own estate planning as well. If you stay within tax law boundaries, you don’t have to pay gift tax on cash or property transferred to relatives or any other recipient. At the same time, the gifts will reduce the size of your taxable estate.

The value of the latter benefit depends on the future of the federal estate tax, which remains uncertain. The estate of an individual who died in 2009 can shelter up to $3.5 million of assets from federal estate tax. That’s an increase from a $2 million exemption in 2008, as stipulated by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which calls for the outright repeal of the estate tax in 2010. But that provision of the legislation expires at the end of 2010, and in 2011, pre-EGTRRA rules return. The estate tax exemption is scheduled to revert to just $1 million, and the estate tax rate will rebound to 55% from the current 45% unless Congress acts to change the law.

While a legislative compromise on the estate tax is likely, the tax will almost certainly continue in some form. And that likelihood only increases the appeal of making gifts now to help loved ones hurt by the recession. In 2010, you can provide tax-free gifts of as much as $13,000—in any combination of cash and property—to as many recipients as you choose. (A periodic inflation adjustment resulted in an increase in this exclusion amount from $12,000 in 2008.) You don’t even have to file any tax forms or otherwise inform the IRS about such gifts (if those are the only gifts made and unless gift splitting with a spouse is elected).

The chance to provide unlimited numbers of tax-free gifts could multiply the benefits not only for recipients but also to your estate plan. For instance, if you have two children and three grandchildren, giving each of them $13,000 in 2010 adds up to a total of $65,000. If your spouse also makes such gifts (or consents to a joint gift by filing a gift tax return), that exemption jumps to $26,000 per relative and a total of $130,000 for five, all without gift-tax consequences. Continue this gift-giving program for five years and you’ll have cut the value of your estate by $650,000 while providing generous assistance at a time when it may be sorely needed.

If the recipient is in a lower income tax bracket, gifting shares of stock, mutual funds, or other assets that have appreciated will save you from paying capital gains taxes. But if you have assets with unrealized losses that you want to give, it’s better to sell them first so that you can deduct the loss on your tax return and give your gift in cash.

If you exceed the annual limit on tax-free gifts, you still won’t necessarily owe money to the IRS. But larger gifts would count against your lifetime $1 million gift-tax exemption, which might be put to better use in funding trusts or for other estate planning purposes. Plus, you’ll have to file a gift tax return—or potentially two gift tax returns if you’re married.

Meanwhile, there are two special situations in which the normal giving limits don’t apply. The first involves money you provide directly to an educational institution on behalf of a student. The second is for direct payments to health care providers.

The unlimited exemption for education payments means you won’t owe gift tax if you cover college costs for children or grandchildren. Suppose your granddaughter is attending an Ivy League institution and the annual bill for tuition is $50,000. You can pay that amount directly to the university and still give her an additional $13,000 gift (or $26,000 with your spouse) that won’t be subject to gift tax.

If children or grandchildren are still years away from college, an even better approach might be to fund a Section 529 college savings plan that names the child as beneficiary. Income earned by plan investments won’t be taxed, and withdrawals to pay qualified educational expenses will also be tax-free. Plus, a special provision allows five years’ gifts to be sent to a 529 plan in one fell swoop. That means you and your spouse could immediately provide $130,000 to jump-start a 529 plan without gift-tax consequences (provided you file a gift tax return to elect to front-load the gift).

 


This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.



INDEX
  • 17 Year-End Moves That Can Preserve Your Tax Benefits
  • How Now, Dow Jones Industrials?
  • ETFs Can Provide Some Other-Worldly Benefits To Investors
  • Trust As IRA Beneficiary: Not Crazy
  • Should You Fly Solo In Your Own 401(k) Plan?
  • Swap Munis To Your Tax Advantage
  • Sowing Tax Seeds For Capital Gains
  • With Fed's Mission Accomplished, Expect Rate Hikes And Low Bond Returns
  • Five Tax-Smart Ways To Transfer Your Wealth
  • Easier Rules On IRA Rollover Waivers
  • 4 Year-End Strategies For Investors
  • 6 Common Medicare Myths That Should Be Dispelled
  • 5 Key Documents In An Estate Plan
  • 10 Sensible Stock Market Strategies After A Fall
  • Be Aware Of Your Tax Surroundings
  • 4 Good Ways You Could Use An RMD
  • Take Early Withdrawals Penalty-Free
  • Life Insurance In Your Plan? Maybe
  • A New Direction For Your 401(k)?
  • Could Estate Tax Repeal Or Reform Become A Reality?
  • Taking Aim At Target Date Funds
  • Here's What You Can't Do In An IRA
  • 6 Common Estate Planning Myths: Here's The Reality
  • A Plunge, Snap Back, And A Goldilocks Economy
  • How To Avoid Emotional Portfolio Withdrawals
  • When To Harvest Gains, When To Harvest Losses
  • Are You Flying Below The Tax Radar?
  • Slice Through 7 Layers Of Taxes For Investors
  • Stay Focused On The Need For Tax-Aware Investing
  • 14 Sure-Fire Midyear Tax Planning Moves In '14
  • Beware The NII Surtax On Trusts
  • Do You Know The Basics Of 401(k) Retirement Plans?
  • 2014 Global Forecast Offers Hope Bull Market Can Spread
  • For Charitable Trusts, The Tax Icing On The Cake
  • 6 Bad Money Habits For You To Avoid
  • Want To Shift Income? Give It Away
  • Avoid Squabbling Over Your Estate
  • Wall Street Gurus Miss Again On Sector Predictions
  • Dust Off Life Insurance Policies
  • New Law Poses Tax Risks For High-Income Investors
  • How To Choose Trustees For Your Trust
  • Pros and Cons Of Section 529 Plans
  • 7 Major Tax Changes In The Fiscal Cliff Law
  • ''Ghost Story'' Can Haunt Your IRA
  • Who's Going To Pay The 3.8% Medicare Surtax?
  • New 3.8% Medicare Surtax Spurs Year-End Action
  • Selling Short And ''Short Sales Against The Box''
  • The Real Impact On US Markets Of A Greek Default
  • How Important Is The Debt Level To Future U.S. Economic Health?
  • New Study Shows Future Impact Of Great Recession
  • Commercial Real Estate May Boost Your Portfolio
  • If You Must Tap Your IRA Early, Know SEPP Rules
  • Get Up To Speed On Estate Planning
  • What Is A Will, And Do You Really Need One?
  • When Are Two Trustees Better Than One?
  • Money Market Funds Should Shrug Off U.S. Downgrade
  • What The Tax Act Means To Investors
  • Children In College Need A Health Proxy
  • The Tax Fallout From The Healthcare Reform Law
  • How A Solo 401(k) Plan Provides You With An Edge
  • Roth IRA Fall-Back: Re-Characterizing
  • Being An Informed Donor: The Realities Of Charity
  • Donor-Advised Funds Gain In Recession
  • Don't Miss Out On The Zero Capital Gains Rate
  • Finding Hidden Treasures In The New Pension Law
  • Ease Pressure On Loved Ones With Tax-Free Gifts
  • Seven Tax-Saving Moves To Make Right Now
  • Roth IRA Conversion Rule Changes Offer Opportunity
  • Nine Estate Planning Mistakes To Avoid
  • One Way To Reduce The Tax On Real Estate Gains
  • Working Longer To Fix The Retirement Mess
  • Tough Times May Turn 401(k)s Discriminatory
  • You Should Find A New Home For An Orphan 401(k)
  • Low Rates Give Estate Planning A Boost
  • Marriage Doesn't Mean Owning All Your Assets Jointly
  • Do The Math Before Refinancing Your Home
  • As Nursing Home Care Claims Drop, Home-Care Claims Rise
  • Making The Best Of A Bad Time For The Economy
  • Regulatory Guidelines Update
  • Beware Of Social Security Identity Theft
  • Free Credit Reports Available Online
  • Don't Forget About Roth 401(k)
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • The Oil Patch Profit Squeeze
  • Timber As A Liquid Investment
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Timber Facts
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • A Primer On Managed Futures
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio?
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • How Volatile Can The Stock Market Be?
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • The Case For Industrial Metals
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • Know The Score
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft: Help Is On Its Way
  • Identity Theft: Tips to Protect Yourself
  • Identity Theft: What Documents Should You Shred Or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • REITs: A Great Diversification Investment
  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Medical Practice Succession Planning: Developing A Plan
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Understanding Deflation
  • Medical Practices Receive Temporary Depreciation Bonus
  • Is Your 401(k) Plan A Failure?
  • Tax Issues To Consider When Buying A Long-Term-Care Policy
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Yesterday's Great Companies
  • 2001 Tax Relief Act Changes Education Planning
  • A Retirement Plan Primer After The 2001 Tax Act
  • Beware Of Common Home Repair Scams
  • Custodial Accounts: One Way To Make Gifts To Children
  • Estate Taxes To Be Reduced Then Repealed In 2010
  • Faulty IRA Conversions Can Lead To Tax Penalties
  • Many Individuals Pay Private Mortgage Insurance Beyond When It Is Necessary
  • Rethinking Estate Planning
  • Retirement Plan Contribution Limit Changes
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Five Tips For Preventing Thefts From Your Checking Account
  • Home Office Deductions: Hoops To Jump Through
  • Income Tax Effect On Single And Married Taxpayers
  • Income Tax Planning For Investments
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning



  • ©2017 Legend Financial Advisors, Inc.®. All rights reserved.