the rules of gifting

With an increasing number of boomers and seniors inquiring about “gifting” to their children and grandchildren, perhaps to fund education or even help with

the purchase of a home, it is time to answer some questions about how much one can give and why one would consider it.

Gifting is the act of giving a financial gift to others, typically to children and grandchildren, although one can gift to whomever they choose.

As of 2016, an individual can gift $14,000 per year or $28,0001 if married to whomever they choose.  The gifts are unlimited and are tax exempt under federal law. 

People often choose to give as an act of love and generosity; parents gifting to children, grandparents gifting to grandchildren.  Giving a financial gift can benefit the recipient by providing financial support and can also benefit the giver by reducing his or her estate.

Gifts can be given without any stated intentions or provisions.  Or they can be given to contribute to a specific purpose such as a mortgage down payment or the purchase of a car.  Gifts can also be placed into certain types of accounts for the benefit of the recipient.  Examples are trusts, custodial accounts and 529 college savings plans.

Trusts

Gifted money can be placed in a trust account for the recipient.  The trust can determine when and how the recipient will be allowed access.  For instance, a trust can be held until a child or grandchild is 21 years of age or can stipulate the distribution schedule over time.

Custodial Accounts

Custodial accounts can be given to young children in the form of Uniform Transfers to Minors Act accounts or Uniform Gifts to Minors Act accounts.  With these types of accounts the minor owns the funds as a gift but the donor may serve as custodian and has complete control until the child reaches the age of majority, usually age 18 or 21. The recipient then assumes control.

529 College Savings Plan

Some chose to gift towards a child’s or grandchild’s college education by contributing to a 529 Plan.  These plans are used towards secondary education and cover the cost of tuition, books and room and board.  Individuals may contribute a lump sum amount of $70,000 or $140,0002 if married, in the first of a five year period.   Many parents and grandparents find that gifting to 529 plans offers unique advantages to college savings.

In Summary

Gifting can be used as a strategy to reduce one’s estate while providing benefit to the recipient.  Gifting can be done without any provisions on the given funds or can be directed into specific types of accounts.  Any way one chooses to gift, benefits can be experienced by all.

 

Amy Weiser

Amy Weiser of The Weiser Group can be contacted atamy.weiser@morganstanley.comor call her at 800-233-2353; visit their site www.morganstanleyfa.com/weiser_weiser/
Amy Weiser is a Financial Advisor with Morgan Stanley Global Wealth Management in Stamford, CT. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice.Morgan Stanley Smith Barney, LLC, member SIPC.

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