FAQ FRIDAY!

FAQ: I gift money to my son to pay his daughter’s college education costs. Is there a way to make these gifts so that no one has to pay taxes?

Actually, there is an annual exemption of $12,000 in 2007 for not reporting gifts. If you gift more than that, you would have to file a gift tax return to show that you are using some of your lifetime gifting amount of $1,000,000. You and your spouse can both gift $12,000 without using any of your lifetime amount. If you make gifts directly to an educational institution, it won’t count against your gifting amount.

You can also set up a college savings account for your granddaughter. You are allowed to gift up to 5 years of gifts in one year. You would still file a gift tax return but you elect to count it over the 5 year period and you don’t eat into that lifetime exemption amount (unless you die before 5 years.) This removes the assets from your estate and keeps it out of your son’s assets for reporting for financial aid. You control the beneficiary designation as well.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of 1. avoiding penalties under the Internal Revenue Code or 2. promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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