After signing his record contract, Russell Wilson gave $12,000 in Amazon stock to each of his linemen to saying it was his investment into their lives. Many people want to make a similar investment in the lives of their family members or help in a time of need. However, careful planning is crucial to avoid creating unforeseen problems with gifting.
For 2019, the yearly Federal Gift Exemption stands at $15,000. Each taxpayer can give $15,000 away to a recipient. For Russell Wilson, that means this initial gift does not need to be reported. He can give $15,000 to each recipient. However, NFL quarterbacks have been known to buy dinners, and presents for the linemen before, during, and after the season. If he bought a few expensive dinners for them and a Rolex, Russell could easily be over the $15,000 limit. Once over the limit he would need to file a gift tax return with his April 15th income tax filing.
The Annual Exemption is one of the best ways to provide gifts without having to file a gift tax return. However, there are two additional ways to invest in your family’s future without filing the return. The Internal Revenue Code allows taxpayers to pay tuition and medical expenses directly to the provider or educational institution.
These provisions allow parents, grandparents, and really anyone to pay for the educational and healthcare cost of their loved ones. The healthcare provisions allow people to help in a medical emergency. The provision for education does not just apply to college, but any educational organization. If your grandchildren have been accepted to an elite high school or were enrolled in an expensive private grade school, those count. However, in order to take advantage of this provision, the payment must go directly to the school or healthcare provider. It does not work to give your loved one money after they have already paid. It also cannot be used to assist people with paying off student loans.
Annual gifting and paying for education can be a useful tool in your Estate Plan. The attorneys at Leonard Sciolla can help maximize your family’s benefits for that plan.