You can make annual gifts of up to $14,000 ($28,000 per married couple) to as many people as you wish without incurring federal gift taxes. For tax year 2013, the annual exclusion for gifts was increased to $14,000, up from $13,000 for 2012.
A wealth-transfer technique you can use to reduce your taxable estate and keep more of your assets for your heirs is with gifting. You can make annual gifts of up to $14,000 ($28,000 per married couple) to as many people as you wish without incurring federal gift taxes.
An example: A married couple with three children could reduce their estate by $84,000 each year if $28,000 were given to each of their children.
Gifting can be used in a number of unique ways. You can use annual gifts to help build a college fund for a child, grandchild, relative, or even a friend -- by contributing to a 529 plan account, a Coverdell Education Savings Account, or a UGMA/UGTA account. In fact, 529 plans have special rules that allow you to make five years' worth of contributions in one year without incurring any gift taxes -- that's $70,000 for individuals and $140,000 for married couples!
Gifts can also be used to build wealth for future generations as well as help a child, relative, or friend fund a down payment on a home, buy a car, or start a business. Your financial advisor can help you determine how annual gifts might fit into your overall financial plan.
January 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Robert J. Pyle, CFP®, CFA, a local member of FPA.
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