The Financial Benefits of Gifting

Gifting to your loved ones can help to provide a better future for your family. It can also help to reduce the size of your estate and the tax that will be due when you pass on. Many people are unsure about the technical aspects of gifting, for example, is it income? Does the recipient of the gift have to pay taxes? For most people, when you gift, you will not need to file a gift tax return. In Massachusetts, there is no gift tax – the federal exemption is 5.43 million, so it won’t apply to most of us! (and if it applies to you, congratulations!)

In Massachusetts, the estate tax exemption is $1,000,000 – any estate over that amount is taxed. This includes all property, retirement accounts, investments, which can quickly add up to more than the 1 million dollar exemption. Using the gifting method is an effective way to reduce the size of your estate and avoid taxes. A married couple can gift up to $28,000 per year ($14,000 per spouse) to an individual. Gifting also applies to any asset that is transferred for a cost under fair market value (for example, a home or car given to a relative at a significantly reduced cost).

Christmas-Gift-Exchange-3.jpg

Some gifts have no exemption limitation and can be given in addition the $14,000 annual exclusion amount. For example, medical or education expenses for your children or grandchildren can be paid without limit, if you pay the provider directly.

What about the person receiving the gift? If you give someone a gift, it does not count as income. An easy way to remember: a gift is not something you’ve done anything to earn, so it is not income. Another way to plan for educational gifting, is through a “529 account” – which can have great tax benefits for you.

While gifting may seem like a great idea, in some cases, it can have some implications in your overall estate plan. If you are planning for Medicaid to help with long term care expenses, there is a five-year look back period which may disqualify you from benefits. This is why it is always important to plan for these things, and plan early, with regular “check-ups” with a financial consultant. There is a lot to consider!

To learn more about gifting, listen to the Money Wise Radio with host. Ray Lantz show on Gifting featuring Attorney Michael P. Coleman of Lantz Law, Inc.

Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.