If you’re like most people, you’ve heard of the annual gift tax exclusion of $13,000.  This means that you can give away up to $13,000 to anyone and everyone each year and not pay gift taxes.  So, the answer to the question, “Can I give my child $13,000 without paying any gift tax?” is “YES!”

However, if you can comfortably afford to give away more than $13,000, you need NOT be limited by the $13,000 annual exclusion amount.

Here are 5 ways to give away more than $13,000 to your child without paying any gift tax:

• If you are married, you and your spouse can “split gifts.”  This means that your annual gift tax exclusion is doubled from $13,000 to $26,000 per recipient. 
• In 2011 and 2012, you can give away up to $5,000,000 without incurring gift tax.  This number is doubled to $10,000,000 if you’re married.
• You can pay unlimited medical expenses directly to the provider for anyone.
• You can pay unlimited tuition expenses directly to the provider for anyone.
• Create a grantor trust for your beneficiaries and pay the trust’s income tax.

Two important gifting rules:

• Never give away more than you can afford.  Your sense of security and well-being are more important than any other goals.  You must be able to sleep at night.
• If you’re going to gift significant amounts that aren’t going to be spent immediately, gift into a trust for your beneficiary, as opposed to gifting outright.  Gifts in trust are protected from predators and creditors such as a divorcing spouse, malpractice suit, bankruptcy creditor, business failure creditor, and car accident or slip and fall plaintiff.

If you have questions about giving $13,000 to a child and other gifting without the wrath of the gift tax, call our office for a free, no obligation consultation.  (619-696-0778)

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

One of the fundamental objectives of estate planning lawyers is to protect your legacy from the ravages of the estate tax. This federal levy has been repealed for 2010 as a result of a provision in the sweeping tax cuts that were enacted in 2001, but it is returning in 2011. There is an exclusion however, and in 2009 it was $3.5 million. If your estate was valued at less than that, you had no estate tax liability. In 2011 this exclusion amount is being reduced to $1 million, and as a result many estates that were safe in 2009 are now going to be subject to the estate tax.

One way to reduce the taxable value of your estate in an effort to stay under the exclusion is to give tax-free gifts to those who would be your heirs after you pass away. There is a lifetime gift tax exemption of $1 million, and this is of course very useful. But in addition to the lifetime exclusion, each taxpayer is also entitled to a $13,000 per person annual exemption. So you can give as much as $13,000 to an unlimited number of recipients every year free of the gift tax, and these gifts do not impact your lifetime exclusion amount.

You can also give educational and medical gifts without incurring any gift tax liability. The tax laws state that gifts can be given to cover the cost of tuition for an unlimited number of students, without regard to the total amount of the gifts, free of the gift tax. In a similar manner you can pick up the medical expenses of any number of people totaling any amount of money without being subject to taxation on these gifts.

As you can see gift giving is a very effective way to reduce the value of your legacy for estate tax purposes while transferring assets to your heirs directly, efficiently and free of the gift tax.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.