Sometimes you lose sight of just how much fun it is to give a gift until you have the experience of doing so once again and you are reminded about why they say that “it is better to give than to receive.” When you are planning your estate you are in a sense preparing to make gifts to your loved ones, but these are final gifts and you do not get to enjoy the experience of watching your family enjoy them. In addition, to the recipients, the occasion that brought on the gift is certainly not a cause for celebration.
One way that you can alter the above scenario is to make gifts to your loved ones while you’re still alive. Doing so can also provide benefits beyond the experiential joy of giving. If your estate is going to be subjected to the estate tax you can reduce your tax liability through the practice of tax-free gift giving. There is a gift tax in place to dissuade people from this practice but there are exemptions. One of them allows you to pay the tuition of an unlimited number of students equaling any sum of money, all free of the gift tax.
If you’re not subject to the estate tax but you are interested in “spending down” your assets in an effort to qualify for Medicaid to pay for long-term care, educational gifting is an option as well. You do have to concern yourself with the five-year look back period to avoid any penalties, and details such as these are best discussed with your estate planning attorney.
If you are seeking estate tax efficiency through gift giving it is worthwhile to note that only tuition, paid directly to the institution, and gifts to cover certain medical expenses are exempt. In addition, there is a $13,000 per person annual gift tax exemption that could be utilized to provide your student with additional financial support with which they could pay for books, fees and some expenses.
Larry Parman
Founding Attorney
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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