Tis the Season for Gifting and Estate Planning

Dec 3, 2013 11:56:25 AM / by Jason Shaw


The financial professionals at Boelman Shaw Capital Partners understand that you want the gifts you give to do as much good as possible.   Contact our Des Moines office to learn about how smart gift giving can be a part of your estate planning strategy.

Gift Tax Exclusion

For 2013, individuals can leave a maximum of $5.25 million to their heirs tax free.  Beyond that limit, inheritance is taxed at a graduated rate that currently reaches up to 40%.  You may limit your taxable estate by transferring some of your assets as gifts during your lifetime.  For tax year 2013, anyone may give up to $14,000 to each of an unlimited number of recipients without having to file a gift tax form.  A married couple may combine their exclusion amounts to give a total of $28,000 per recipient without filing gift taxes.

There is also a lifetime gift tax exclusion limit, which is currently set at $5.25 million.  Only amounts that exceed the annual exclusion limit for the year count toward the lifetime limit.  For example, if, as a single person, you gave $24,000 to one recipient this year, $10,000 of that will count toward your lifetime exclusion limit of $5.25 million.  Although you must file a gift tax form for each year you exceed the annual exclusion limit, you will not actually have to pay any taxes until your lifetime gifting total exceeds $5.25 million (or the current limit at the time).


Gifts for Educational or Medical Costs

Gifts to pay the educational or medical expenses of another person also receive special gift tax exemptions.

529 Plan Contributions

A 529 plan is one of the most popular ways to save for college.  Earnings are generally not taxable, as long as they are used for qualified educational expenses.  The special rules governing 529 plans allow a donor to contribute up to five times the amount of the annual gift tax exclusion in one year, provided that no other contributions are made within a five-year period.  This allows an individual to contribute $70,000 (or a married couple to contribute $140,000) in 2013 to a beneficiary’s 529 without being subject to gift tax.

Direct Payments to Educational or Medical Providers

You may make unlimited payments for a beneficiary’s school tuition or medical expenses without incurring a gift tax obligation.  In order to qualify for the exemption for such gifts, you must make all payments directly to the qualified educational organization or medical service provider.  If the beneficiary has already paid the tuition or medical bill, reimbursing him or her for that cost does not qualify you for the exemption.

Tuition is the only educational expense that qualifies for the unlimited exemption. Books, housing, technology, and other educational costs are not included.

You may make unlimited payments to cover another person’s medical expenses, including insurance costs.  Any amount reimbursed by an insurance provider, however, will not qualify for the exemption.  If you have paid a beneficiary’s medical bill, and it is subsequently covered by insurance, the amount you paid will be counted as a gift for tax purposes.


Unlimited Marital Deduction

Spouses may pass unlimited funds between each other, either during their lifetimes or at death, tax free.  If a wife dies and leaves her husband her entire estate, it is exempt from estate tax, no matter what its value.  When the husband dies, however, any amount over his lifetime exemption amount that is passes to heirs will be subject to estate tax.

Estate Equalization

Estate equalization allows a married couple to minimize the portion of their combined assets that will be subject to estate taxes.  The wealthier spouse transfers assets to the other during their lifetimes to make the two estates roughly equal in value.  In that way, each spouse may use his or her entire lifetime exemption amount.  For example, if a husband has $8 million in assets, and a wife has $2 million, the husband may choose to transfer $3 million to his wife during their lifetimes so that their estates amount to $5 million each.  In this way, neither estate will be subject to estate tax.  If all $8 million were to remain in the husband’s name, $2.75 million of his estate would be subject to estate tax under the current limits.


Charitable Contributions

Gifts to qualified charities are tax deductible and not subject to gift tax.  Wise charitable giving can both reduce your current tax bill and limit the amount of your estate that will be subject to estate tax.


Estate and gift taxes are subject to complex and changeable federal and state laws.  Always consult a knowledgeable professional for the most complete and up-to-date advice on estate planning and gifting.  The estate planning professionals at Boelman Shaw in Des Moines can help you make the most of your gifts and donations this year.

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

Topics: Financial Planning

Written by Jason Shaw