Time to Think About Gift Giving

Monday, October 29, 2007
Contributed by: Sharon E. White

It is only October and there are already Christmas decorations up in some stores. It is hard to believe that it is almost the end of the year. One end of year estate planning technique is to utilize gift giving. Not necessarily the Christmas present variety but the estate planning variety.

This year every person is allowed to give up to $12,000 per donee (recipient). This amount is called the annual exclusion amount. If you are married, you and your spouse can each give up to $12,000 so that the total can be $24,000 per donee. Therefore, a married couple, trying to transfer assets down to children or grandchildren (or nieces and nephews, or completely unrelated parties), can give $24,000 multiplied by the number of recipients. For example, a couple with three children and six grandchildren can give away $216,000 this year; and again next year and the year after, etc. The gift can be made in cash or in other property.

In addition to the annual exclusion amount, donors can make "qualified transfers" on behalf of someone else. A qualified transfer means any amount paid on behalf of an individual (1) as tuition to a qualified institution or (2) to a qualified medical provider. So, for example, the grandparents described above can pay the grandkids' college tuition in addition to making gifts of $216,000 this year.

One requirement for both of these qualified transfers is that the amounts must be paid directly to the educational institution or the medical provider. The donor cannot reimburse the individual for tuition or medical payments that the individual has already made without counting that amount toward the $12,000 per year annual exclusion amount. With respect to tuition payments, it can only be for tuition. It cannot be for books, room and board, or other expenses. With respect to medical expenses, the amount allowed to be paid includes amounts paid for medical insurance on behalf of the individual. Of course, there are hurdles that must be jumped so, if you are considering paying educational or medical expenses on behalf of someone else and wish those payments not to be included in the annual exclusion amount, you need to check with your accountant or estate planning attorney to be sure that you are jumping correctly.

One other thing to consider: I almost never let my clients write a check for $12,000.00. I usually recommend that they give something less than that. The donor needs to take into consideration all of the other gifts made to that donee during the year. For example, the value of Christmas, birthday, Valentine's day, etc. gifts.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.