Tax Not Applicable to Gifts of Tuition, Medical Expenses

You may not be aware of it, but gifts that you give to others are taxable. With that said, there is a $13,000 annual exemption that allows you to make gifts totaling this amount, to any number of people, tax-free.  Other than that just about all gifts are taxable.

This becomes an issue for people who have considerable assets.  Above and beyond the $13,000 annual exemption there is a lifetime unified gift/estate tax exclusion. Right now it stands at $5.12 million; next year it goes down to $1 million.

If you are a person with assets that exceed the exclusion amount you may be in a position to help your family while you are still alive. But if you make gifts in excess of this $13,000 per person annually you will be required to file a Form 709 U.S. Gift Tax Return.  Each of these gifts will reduce the exclusion that will be applied to your estate.

There are however a couple of ways that you can assist family members while you’re still alive in a tax-free manner. You may pick up the tab for health care expenses as a gift to others without it counting against your annual gift exclusion or having to file a gift tax return against your lifetime exclusion.  These gifts can equal any amount of money, but you must make the payments directly to the health care provider

The other form of tax-free giving I would like to highlight involves educational expenses. You can pay the tuition of students as a gift free of taxation, but once again you must pay the institution directly rather than giving the money to the student. And, expenses, fees, and books are not part of this exemption.

In spite of the gift tax limited gift giving is possible if it is done in an intelligent and informed manner. To obtain more details, take action right now to set up an appointment to speak with a good Oklahoma City estate planning lawyer.

Larry Parman
Author, President and Founding Attorney
Parman & Easterday