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Julie Garber

Year End Estate Planning Tip #2 - Consider Making Other Gifts That Aren't Really Gifts

By December 13, 2011

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Year end estate planning tip #1 was to consider making annual exclusion gifts - meaning transfers of property that do not exceed $13,000 per person. These types of transfers are not really considered gifts at all. In addition, there are two types of unlimited "gifts" that do not count against your annual gift tax exclusion:

  1. Payments that qualify for the educational exclusion; and
  2. Payments that qualify for the medical exclusion.

What are payments that qualify for the educational exclusion? Payments that are made directly to a qualifying domestic or foreign institution as tuition for the education of an individual. What does this mean? That you can pay your grandchild's college tuition in the amount of $20,000 and also give your grandchild an additional $13,000 by December 31, 2011, and another $13,000 on or after January 1, 2012, without any federal gift tax consequences. But note that the payment must be made directly to the institution providing the education, not to the individual receiving the education, and the payment must be for tuition, not for books, supplies, room and board, or other types of college expenses, otherwise the payment will be considered a taxable gift.

What are payments that qualify for the medical exclusion? Payments that are made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual. Expenses for medical care are the same as those deductible for income tax purposes. What does this mean? That you can pay for your grandchild's emergency appendectomy in the amount of $20,000 and also give your grandchild an additional $13,000 by December 31, 2011, and another $13,000 on or after January 1, 2012, without any federal gift tax consequences. But note that the payment must be made directly to the institution providing the medical care or company providing the medical insurance, not to the individual receiving the medical care or insurance benefit, otherwise the payment will be considered a taxable gift.

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