BOSTON (CBS) – Happy Thanksgiving!
When you mention gifting what usually comes to mind is a birthday or Christmas. What I’d like to talk about today is gifting assets to another generation.READ MORE: 2 Extricated From Car After Crash In Medford
Your federal exemption, which is the amount you can give away tax free, for this year is $5.12 million and if you have more assets than that when you die, your estate will owe taxes. That number will fall back to $1 million on January 1st unless we have a tax law change. Married couples have an unlimited gifting privilege between spouses in life or death.
Planning is very hard with estate taxes for Congress changes the rules often! The tax laws will probably change soon. Maybe as soon as the end of the year.
And for Massachusetts, your exemption is $1 million. And it gets complicated. So if you have amassed the big bucks find a good estate-planning attorney to help you.
Now each of us can give away annually $13,000 without using our exemption to as many recipients as we wish as long as we have the money to make the gifts. And if we are married and our spouse joins in we can gift $26,000. We can also pay someone’s medical or school bills and that is treated similar to annual gifting in that you don’t use up your exemption.READ MORE: Candlelight Vigil Held In Memory Of 5-Year-Old Elijah Lewis; Autopsy Confirms ID
So why would we want to give away our money? If you want to help the next generation accomplish their goals or if you want to pare down your estate so you won’t owe estate taxes. You can do this using your gifting exclusion.
For example, you have an estate worth $1.2 million you will owe no federal estate taxes but it will owe Massachusetts estate taxes. Now would you rather give it away to your family or to the government?
You can gift your granddaughter $13,000 and if your husband joins in, $26,000. If she is married you can gift her husband an additional $26,000. And they have 2 kids so you can also give $26,000 to each.
Your grandson got into Tufts Medical. He is eligible for some grants but will need about $48,000 a year in tuition alone. You can pay the tuition bill for him, but you must pay the school directly. And then you and Grandpa can still gift him $26,000 in December and another $26,000 in January. That totals $100,000.
Gifting can be an estate planning tool for you can save on future estate taxes and have the pleasure of watching your dollars work for your children or grandchildren while you are still alive. But do not give away assets you think you will need in the future.MORE NEWS: Keller @ Large: Boston Mayoral Race Enters Final Stretch
One more thing: Thanks to Peter Johnson of Woodman & Eaton of Concord, MA for helping me understand the MASS estate tax.