Estate Planning - Will, Gifting and Gifting Taxes Part 2

Giving away cash is the simplest thing to do, but you don't always have cash available.

For example, you would like to help your children buy a house, and they are short of the money for the 20 percent down payment. You and your wife could join together and give the kids $40,000---$20,000 to your daughter and $20,000 to your son-in-law---for the down payment. Now, if they buy the house in December and need to do repairs and buy furniture, a snow blower, and a washer and dryer, you could help them out again in January with another $40,000. Of course, all this sounds wonderful, but be sure you have it before you promise it or give it away.

If you nephew is going off to college this year, you can slip $10,000 into his bank account. If you are really feeling generous, you could actually pay his tuition bull and his medical insurance as well. The check would need to be paid directly to the school and should not pass through his hands. Because of financial aid considerations, you would want to slip him his $10,000 after he was accepted into the school of his choice and got his first tuition bill. Paying someone's medical bills or tuition bills directly is permitted under gifting and is not considered part of the $10,000 annual exclusion.

Giving away cash is the simplest thing to do, but you don't always have cash available. You may have to sell your stocks or mutual funds to get the cash, and then there is a tax liability to consider. Consider giving the stock or mutual funds directly. You can still give $10,000, but it is the value of the stock at the day of the gift, not when you originally bought it. By doing this, you may get appreciating assets out of your estate. But if your nephew has to sell the stock to pay for college, then he will owe capital gains taxes on the difference between the value when he sold it and the value at which you bought it. He does use your basis of the stock, but he uses his tax bracket, which will probably be lower.

Consider giving a charity your appreciated stock or mutual fund. Your deduction is for the amount of the stock on the day you gift it, but when the charity sells it , it will owe no tax on it. Kind of like having your cake and eating it, too.

Go First Class or Your heirs Will

I first saw this wording on a plaque on the desk of my travel agent. She tells her retired clients to go first class; otherwise, their heirs will after they are gone. How right she is! It's funny, but oh so true.

I have met retirees who are saving it for the kids. Why? Most kids have the ability to make it on their own. We struggle to educate them and make their lives free of hassle. Again, why? Do we really do them a favor by giving them everything? I'm not so sure. Live your life to its fullest, and if there is anything left over, sure, the kids should get it.