Tax Free Gifting
I’m frequently asked: “How much can I give away tax free?” In 2010 you can give up to $13,000 in cash or property to any one person completely gift tax free. If you are married, you and your spouse can double that tax free gift to $26,000 per recipient. So if you have two children and four grandchildren a married couple could give a total of $156,000 ($26,000 to each of the six individuals). You may also pay for a person’s educational expenses or medical bills in the same year in addition to the direct gifts of $13,000 per person. Therefore, you could pay your grandchild’s college tuition and give him or her $13,000 ($26,000 if you are married) in 2010 without incurring any gift tax. One word of caution regarding tuition and medical – you must pay the institution or provider directly. Do not write the check to the individual and have them pay the school or hospital.
For individuals with substantial estates this can be an effective strategy to help your family members while reducing the value of your estate. You can therefore minimize your estate tax burden and still enjoy helping out your family.
There are a couple of things to keep in mind with gifting programs. First is that you are not entitled to get any of that money back. If you ultimately need those gifted funds, the recipient, if he or she still has the money, is under no legal obligation to help you out. The moral: be sure your gifting will not impoverish you. Second, if you have reason to believe you may need to qualify for Medicaid in the future, the state will look at all gifts within the five year period of time prior to applying for Medicaid. If there are gifts during this five year period, you may be ineligible to receive Medicaid for a period of time.
