If your planning to leave behind any assests to friends or family, there are important tax guidelines you should understand. There are rules which have been created, to specify what qualifies as a tax free gift. Understanding if your estate is subject to tax, is an important part of estate planning. During 2001 the Economic Growth and Tax Relief Reconciliation caused the federal estate tax to fade out. By 2010, federal estate tax was completely dead. Immediately after the death of estate tax, it was reinstated with new guidelines in 2011. The 2011 federal estate tax was setup to tax 35 percent of all estates above $5,000,000 million. The following year the estate tax exemption grew to $5.12 million.


In 2013 the American Taxpayer Relief Act passed, causing the estate tax to remain a permanent component in tax code. This new act is set to be automatically indexed for inflation. This past year the estate tax exemption amount has increased to $5,430,000. Schwartz, Fang & Keating can help clarify any confusion with tax exempt gifts. Estate planning can also help to manage assets and organize your expenses.


Gifts free from being taxed:

  • A gift to your spouse.
  • A gift to charity.
  • Gifts to support a political organization.
  • Medical expense gifts.
  • Educational expense gifts.

    Spouses and Gift Splitting:

    Spouses have the ability to provide tax exempt gifts up to $14,000, this is called gift splitting. Therefore, a couple is allowed to provide a combined total of $28,000, to a friend or family member without being subject to tax. A married couple also has the ability to provide cash gifts free of tax, to each individual family member. For example, a married couple can provide a cash gift for a total of $84,000 to their child who is married with a kid. For this example, the married couple can provide a combined $28,000 to each on of their child’s family members.


    Education Gifts:

    All gifts paid directly toward tuition are tax free. Other education expenses such as room and board, books etc., are not eligible for the tax free exemption. If you’d like to also help cover other education expenses, it would count toward the $14,000 cash gift.


    Medical Gifts:

    Similar to educational gifts for tuition, all medical gifts must be paid directly to the organization in order to qualify. If you provide a gift directly to the person for their medical expenses it will count toward the $14,000 cash gift.


    529 Plan Contributions:

    The annual $14,000 exclusion applies to the 529 plan, with one exception. a 529 plan will give you the opportunity to provide a lump sum of $70,000 or $140,000 (if it’s a joint gift), which acts as if you paid the $14,000 over five years. Any additional funds exceeding the $70,000 will be allocated toward the cash gift.

    Please contact us directly for any other questions or concerns regarding estate planning and gifts exempted from tax.