1st Aug 2011

The Gift Tax was first enacted in 1924 to prevent individuals from making deathbed gifts in order to avoid the Estate Tax.  Today, there is $13,000 annual exemption from the Gift Tax which allows any individual to give any other individual up to $13,000 per year without incurring any tax.  Such gifts can be made to an unlimited number of individuals.

In addition to the annual exemption, there are two categories of gifts which are exempt from Gift Tax.

First, gifts of tuition are excluded from Gift Tax.  However, in order to qualify, such gifts must be made directly to the educational institution.  In other words, reimbursements to the beneficiary or his or her parent for tuition that was already paid will not qualify for the exclusion.  Additionally, only tuition expenses qualify for the exclusion—expenses for books, supplies, room, board or other related expenses do not qualify.

Second, gifts of medical and dental expenses are excluded from Gift Tax.  Again, such gifts must be made directly to the institution or facility providing the medical services.

There is no limit on gifts of tuition or medical expenses.  Use of these exclusions can be a valuable tool in reducing an individual’s taxable estate.  However, it is important to understand these exclusions before they arise due to the strict requirements for making such gifts.

For additional information regarding available exemptions, please see The Importance of Planned Giving.

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