2009 Annual Gift Tax Exclusion Rises

jkom51November 23, 2008

There may be a few folks left standing who could use this information, LOL....some helpful hints about using the Gift Tax Exclusion to assist in estate planning.

From WSJournal column by Tom Herman:

""Q: I read your recent article in which you said that the annual gift-tax exclusion will go up in 2009 to $13,000. Could you tell me what tax form to use to file for this annual gift-tax exclusion?

S.W., Pittsburgh

A: Good news: You don't have to fill out any Internal Revenue Service forms as long you follow the rules.

As I reported, IRS officials recently confirmed that the annual gift-tax exclusion will increase next year to $13,000 from the $12,000 of this year, 2007 and 2006. The increase reflects inflation adjustments required by law.

The gift-tax exclusion means you are allowed to give away as much as $13,000 next year to anyone -- and to each of as many people as you want -- without having to fill out any IRS forms or to worry about income-tax issues.

The lucky recipient of your generosity doesn't have to be a child or even a relative. It can be anyone at all. Many wealthy people take advantage of the gift-tax exclusion each year as an estate-planning tool.

Just remember you can't deduct gifts unless you make them to qualified charitable institutions and unless you itemize your deductions. (Nearly two-thirds of all taxpayers take the standard deduction each year, instead of itemizing.) You may think of a gift to your child as a noble act of generosity, but that doesn't make it tax-deductible.

I also mentioned recently there are certain ways to give away even more than the annual exclusion without having to report it to the IRS: You can pay for someone else's medical or tuition expenses without having those payments count toward the annual limit.

"For example, a grandmother who wishes to help pay for a granddaughter's education can write tuition checks directly to the school without making a taxable gift," says a new Deloitte Tax LLP publication. "Tuition is not limited to college tuition; any level of school tuition qualifies for this exclusion. Medical does not just mean doctors and hospitals; any medical expense, including insurance, can be paid under this exclusion."

Some people, encouraged by an IRS ruling several years ago, even have prepaid tuition expenses for students years in advance.""

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Thank you so much for posting this.

Believe me, it isn't due to any extra wealth we have, but we are in a situation that we need to transfer some property or money to our children and this might be the way to do it.

    Bookmark   November 23, 2008 at 2:05PM
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ladytexan if your children are high school age or younger and you hope to have a chance for financial aid when they go off to college, you need to be careful what kind of accounts you set up for them. Children's assets in a 529 account will not be assessed nearly as high for financial aid as assets in a UTMA. Also, you can add up to $60,000 in a 529 at one time for each child (it's not limited by the gift tax exclusion amount).

    Bookmark   November 23, 2008 at 4:09PM
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>>Also, you can add up to $60,000 in a 529 at one time for each child (it's not limited by the gift tax exclusion amount).>>

Ummm....I'm not certain if this is correct. When I worked at a CFP's office, one of our very wealthy clients used 529's for each of his 5 grandkids to reduce his estate with a view towards estate taxes. The max he could put in was the $12K/yr limit with a 5-yr max carryforward for a total of $60K; e.g., no gifting from the estate for the next 5-yr period.

With the 2009 exclusion rising to $13K/hr, that would be a total $65K per each 529 plan, with no further estate gifting for the next 5 yrs.

You might want to consult with your tax advisor to confirm what applies best in your situation.

    Bookmark   November 23, 2008 at 8:24PM
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jkom you're correct, the $60,000 limits the opportunities for gifting in the following 4 years. The $60K max per 529 I referred to uses the 5-year election. You can elect to treat your $60,000 in 529 plan contributions as if they were made ratably over five years instead of all in one year. A husband and wife can gift a total of $120,000 per child in this manner in 2008, with the total rising to $130,000 if gifted in 2009. But as jkom notes, this must be included in planning for gifts in the future.

The interesting thing about 529s is that they can be set up for the benefit of anyone in the giver's family (son, daughter, grandchild, niece, spouse) and the designated beneficiary can be changed at any time.

Here is a link that might be useful: IRS Education rules

    Bookmark   November 23, 2008 at 8:54PM
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Thanks jkom51 for posting this it has been on my list of things to find out about for the last month. I will run it by our CPA. He set up a gifting plan several years ago to keep the estate tax under control. He usually gives us the amount to gift when we have our annual tax meeting but we may want to do something before that happens.

With the new administration who know how it will play out after 2010. I have read so many conflicting accounts as to what Obama will do. One said he will just let it go back to the 1 million exclusion and others have said he would set the exclusion at 5 million still others said 8 million. Does anyone out here have any information other than hearsay? Poor guy coming into the presidency with such a financial mess he probably hasnÂt figured it all out yet.

    Bookmark   November 24, 2008 at 12:44AM
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Mine are grown, and this may not apply. We are going to call the accountant and see what he says.

    Bookmark   November 24, 2008 at 1:41PM
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>>what Obama will do.I think you mean, what the Democratic Congress will do. I sincerely doubt Congress will jump whenever Obama tells them to. And that isn't the way he tends to operate anyway. He's a consensus builder, which is pretty evident from the people he's picking for his political team.

It would be politically unpopular to allow the estate tax in 2011 to lapse back to its old $800K limit. Inflation alone would demand a resetting upwards. The best guess by most analysts is that it will be compromised to a level between the $3M to $5M figure.

    Bookmark   November 24, 2008 at 7:16PM
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Unless everything our CPA has told us for the past 8 years is incorrect if congress does nothing the estate tax goes back to a 1 million exemption in 2011.

The reason I said Obama is no matter what congress dose he will have to sign it. He said today he will more than likely just let the Bush tax cuts run out in 2010. Several reports have said he will set the exemption after it runs out at 3.5 million with the current tax rate at 45% for amounts over that. That would give a couple a 7million exemption if set up properly within their estate plan.

    Bookmark   November 25, 2008 at 1:13AM
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BTW, people should be aware if they plan to pass money to their grandchildren, skipping their children's generation, there is a heavy tax penalty for doing so UNLESS a trust is properly set up. Consult a qualified estate attorney for details when planning this type of arrangement - or indeed, any type of trust designed to reduce estate taxes when you believe you are anywhere close to the Federal estate tax limits, no matter how they change in the future.

    Bookmark   November 25, 2008 at 4:12PM
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thanks a lot for your post!

    Bookmark   November 30, 2008 at 3:30AM
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