Many people in New York and throughout the country prefer to give some of their money away to family and other loved ones while they are still alive rather than bequeathing it to them in a will. However, there are potential tax implications when you give someone a large amount of money or other assets. It’s important to know what those are before you write that check so that you don’t get stuck paying a gift tax that can run as high as 40 percent.
The bad news for gift-givers is that they, not the recipients, pay the tax. The good news, and there is a lot of it, is that most gifts are not subject to a gift tax. For example, gifts to a spouse are not subject to a gift tax. Neither is money that is provided for education as long as it is paid directly to the school. That’s important to know for grandparents or others who want to make tuition payments. Payments for medical expenses are also exempt as long as the money is paid directly to the health care provider.
Even if you just want to give cash for someone to use in whatever way they choose, you have to give a lot before worrying about the gift tax. For tax years 2013 and 2014, only gifts of $14,000 or more to one individual are subject to this tax. If a married couple gives a gift together, that annual limit of $14,000 is doubled. Further, you may not even have to worry about the annual limit unless you plan to give away millions of dollars over the course of your life. The 2013 “lifetime exemption” is $5.25 million, and the plan is to raise it to $5.34 million this year.
If you work with legal and financial professionals who are experienced in estate planning, you can probably find ways to provide a significant amount of money to loved ones while you are still alive to see them enjoy it, and you can do so without having to write the government a big check.
Source: The Motley Fool, “Gift Tax in 2014: What Holiday Givers Should Know Now” No author given, Dec. 24, 2013
