Why You Need to Know About Gift Tax Exemptions. In 2015, you can make a gift to another individual of $14,000 without paying gift tax to the federal government. That may seem like a significant amount of money. However, it does little to pay for your grandchild’s graduate school tuition or your godchild’s cancer treatment. While your grandchild or godchild may both be well taken care of in your estate plan, they may need the money now to start their careers or save their lives.
Gift Tax Exemptions Can Help You Help Your Loved Ones Now
The Internal Revenue Service (IRS) makes exceptions for qualified tuition payments and medical expenses that you want to pay on someone else’s behalf. According to the Code of Federal Regulations, a qualified transfer of money for tuition or medical expenses is not subject to gift tax. More specifically, there are two types of qualified transfers which include:
- Tuition expenses. These expenses must be paid directly to a qualifying educational institution for the education or training of an individual. The exception is unlimited, but it only applies to tuition and it must be paid directly to a qualifying educational institution. It does not apply to other expenses such as books, student fees, room, or board.
- Medical expenses. These expenses may include costs associated with diagnoses, curing, mitigating, treating or preventing a disease, or for something that affects the function or structure of the body. It can also be used for transportation costs related to medical needs and for the costs of obtaining and maintaining health insurance for an individual.
Other educational and medical expenses may be subject to the gift tax limits.
What Does This Mean for Your Estate Plan?
You may love your grandchild or godchild very much. However, you may have other grandchildren, godchildren, or others whom you love just as much and you may be concerned that the large gift that you just provided to one individual will result in an inequitable distribution of your assets. Accordingly, you may want to modify your estate plan to make sure that your gifts are taken into account and that all of your loved ones receive equitable distributions.
You can do that before or after making a sizeable gift for educational or medical expenses. To find out more about modifying your estate plan, please browse our free related links and our free videos.