David Lerner Associates: How to Give Money to Family Members Without Incurring Taxes

David Lerner Associates: How to Give Money to Family Members Without Incurring Taxes

Core Facts

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Often, parents and grandparents desire to give money to their children and grandchildren for a wide range of purposes: to help pay for a wedding or honeymoon or buy a first home or automobile, for example.

But many people aren’t aware that these gifts to family members could be subject to federal gift taxes. The American Taxpayer Relief Act (the legislation passed on January 1, 2013, that averted the so-called fiscal cliff) raised the top estate and gift tax rate from 35 to 40 percent.

Some Good News

The good news, however, is that the Act also permanently maintained the $5 million per person (or $10 million per married couple) lifetime gift and estate tax exemption. This amount will be indexed and raised to account for inflation in future years — it is $5.25 million in 2013. What this means is that you and your spouse together can give up to $10.5 million to your children and grandchildren over your lifetimes before the money is subject to federal gift tax.

In addition, you and your spouse can also take advantage of your annual gift tax exclusion to give up to $14,000 each (or $28,000 combined) to each of your children and grandchildren, as well as their spouses. The annual gift tax exclusion is factored in before the lifetime gift tax exemption — so if you don’t give away any more than your annual exclusion amount, your gifts will not be counted toward your lifetime exemption amount.

For example, consider Jim and Jane, who would like to give money to their son and future daughter-in-law to help pay for their upcoming wedding and honeymoon. They can give them a combined gift of up to $56,000 in one year ($14,000 x 4) before the gift amount would start to count toward their combined lifetime exemption of $10.5 million. As long as their annual gift is no more than $56,000, they will not have to file a federal gift tax return for the year.

If either Jim or Jane gives either their son or future daughter-in-law more than $14,000 in a single year, they must complete a U.S. Gift Tax Return (IRS Form 709) and file it by the following year’s tax deadline. On the form, Jim or Jane will disclose by how much the gift exceeded the annual gift tax exclusion and then subtract this amount from $5.25 million. So unless this excess amount exceeds $5.25 million, no gift tax will be due at that time.

Substantial Tax-Free Gifts Allowed

As you can see, federal gift tax law allows parents and grandparents to give substantial amounts of money to their children and grandchildren over their lifetimes without incurring federal gift taxes. These taxes usually only come into play for wealthy individuals and couples who are passing their estates on to their heirs — not individuals and couples who simply want to help pay for their children and grandchildren’s weddings, honeymoons or first homes.

Estate and gift tax laws can be complex, however, so if you have any questions about your specific situation, be sure to consult with an experienced tax expert.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. David Lerner Associates does not provide tax advice.Be sure to consult with your tax consultant or expert before making any decisions based on material contained in this article. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.http://www.facebook.com/DavidLernerAssociatesdavidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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