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Tips for tax-free gift giving in 2013

NAELA National Academy of Elder Law Attorneys, Inc. MEMBER

New Jersey residents who are contemplating sharing their wealth in 2013 could benefit from some gift giving suggestions, especially if they do not prefer to pay unnecessary taxes. While people may feel the urge to write a check to a family member or friend impulsively, it is imperative to step back and follow the proper procedure in order to avoid owing a gift tax, which could end up being as high as 40 percent.

Some simple tax planning tips may prove effective. For example, the annual gift exclusion is currently $14,000. The unified lifetime federal estate and gift exclusion amount is currently $5.25 million, increasing in 2014 to $5.34 million. Some people may wish to write a check for $14,000 at the end of 2013 and another one in January 2014, offering the recipient investment growth potential. Spouses may also choose to combine their annual exclusions and offer joint cash gifts of $28,000 to any individual tax-free.

Many people enjoy helping their grandchildren go to college by contributing to a Section 529 education savings plan. While these contributions are considered gifts and thus subject to the annual exclusion, the law allows a lump sum contribution of up to $70,000, but it must be treated as if it had been spread over five years. Those who choose to give in this manner must file a gift-tax return with the IRS and abide by additional rules regarding the exclusion.

Although being generous can be rewarding, there are many tax considerations involved. Additional rules may apply where the gifts are made in non-cash property that require appraisals or to a trust rather than directly to an individual.

Source: Forbes, "The 2013 Limits On Tax-Free Gifts: What You Need To Know", Deborah L. Jacobs, November 01, 2013

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