section 1 - The American College Online Learning Center

(1) Outright(2) In trustb. Much or all of the average client’s wealth will be transferred at death.9. Advantages of lifetime giftsa. Gifts which completely remove property from the estate(1) Annual exclusion gifts(2) Medical and educational expenses paid directly to a providerb. Applicable credit exempts the equivalent of $5,120,000 (in 2012) of taxabletransfers from gift tax.c. Subsequent appreciation on gifted property escapes wealth transfer taxes.10. The annual exclusiona. IRC Section 2503(b)b. Permits donor to give $13,000 per year per donee free of gift taxc. Gift splitting with the donor’s spouse is permitted allowing a married couple to giveany number of donees $26,000 a year.(1) Annual gifts generally do not require a gift tax return, however, one isrequired with gift splitting.d. To qualify for the annual exclusion, the gifts must be gifts of a present interest.11. Gifts for educational and medical expenses [IRC Sec. 2503(e)]a. Tuition expenses are limited to tuition payments and payments for books, meals,and lodging may be taxable gifts.b. Medical expenses including those expenses deductible under Code Sec. 213,including expenses for the prevention, diagnosis, and cure of illness, includinghealth insurance premiums, are eligible for the exclusion.c. Independent of and available in addition to the annual exclusiond. Payments must be made to service provider.e. No family relationship is required.f. Planning Point: These gifts are not subject to gift tax, making this technique aneffective way to remove property from the gross estate.12. Considerations for making giftsa. Can you afford it?(1) The client should never transfer assets that might be needed for his or herretirement lifestyle, with appropriate consideration given to emergencies.b. Can the donee manage the transfer?(1) Giving too much to a beneficiary could reduce his or her incentive toachieve independently.c. What property should be given away?(1) Some assets cannot and should not be transferred.(2) For example, assets in a retirement plan or IRA are not assignable.d. What are the income tax issues?(1) Consider tax issues. For example, taking money out of the retirement planto make a gift is inadvisable because the distribution would cause theaccount owner or participant to be subject to income taxes.4.24