For those who are interested in transferring assets from your estate to your grandchildren or other beneficiaries without paying gift tax, here are three suggestions for you to consider:
1. Contribute to a college savings (section 529) plan. Contributions made to a qualified tuition plan are not deductible on your federal tax return; however, grandparents can contribute up to $65,000 per beneficiary in the current year. There are special rules as to how this is done, so please contact us if you are interested. The designated beneficiary generally does not have to pay tax on distributions from a qualified tuition plan as long as the total distribution does not exceed the qualified education expenses.
2. Pay tuition expenses on behalf your beneficiary directly to an educational organization. If your grandchild is already in college, direct payment of tuition is not subject to gift tax; however payment of expenses for books, room, or board is not eligible for this exclusion. According to current tax law you may make an unlimited direct payment and also give a full annual exclusion gift, currently $13,000, to the same beneficiary.
3. Instead of cashing in your investments and gifting the cash to your children, consider a gift of appreciated stock. By doing this you may be able to avoid gain on the sale of the stock and depending on their income tax situation, your child or grandchild may be able to sell the investment(s) tax-free.
Determining how to pass income to your family can be a complicated decision to make, as it raises a host of tax and financial questions. Please call our offices if you would like to discuss your particular circumstances.
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