ESTATE TAX PLANNING TECHNIQUES - GIFT DEFINITIONS

Gift - a gift is a transfer of real or personal property, tangible or intangible, that you make directly or indirectly, in trust, or by any other means to another person (donee) for no consideration.

Gift tax - the Federal government imposes a tax on gift transfers over a certain amount to each donee per year. The current gift tax exclusion amount (the amount you can give to each donee every year without incurring gift tax) is $14,000 in 2014. You can give up to $14,000 every year to everyone in the world.

Why is there an annual gift tax exclusion?

The government uses an annual gift tax exclusion amount to allow for birthday, Christmas, wedding, graduation and any other gift giving occasions so everyone doesn't have to prepare gift tax returns every year.

Why does the government impose a gift tax?

When you gift assets to others, your estate is reduced. The government figures if you give enough away, it may not get any estate tax at your death. So the government imposes a gift tax to reduce the loss of estate tax revenues.

Does a gift of any interest in property qualify for the annual exclusion?

The annual exclusion only applies to a present interest gift. A present interest gift is one which the donee has all immediate rights to the use, possession, and enjoyment of the property and income from the property.

The annual exclusion does not apply to a future interest gift. A future interest gift is one which the donee's right to the use, possession, and enjoyment of the property and income from the property will not begin until some future date. Future interests include reversions, remainders, and other similar interests or estates.

Gifts excluded from gift tax:

Educational Exception - The gift tax does not apply to tuition (but not for books, supplies, or room and board) you paid on behalf of an individual directly to a qualifying domestic or foreign educational organization for the education or training of the individual. A qualifying educational organization is one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

Medical Exception - The gift tax does not apply to medical expenses including medical insurance premiums you paid on behalf of an individual directly to a person or institution that provided medical care to that individual. Medical expenses are defined under IRC Section 213(d) which defines medical care for income tax deduction purposes.


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