By Lewis J. Walker
NEW YORK (AdviceIQ) — Tax strategies are key elements of financial planning. When sharing your fortune with someone else, no matter how you accumulate it, you should understand the tax implications so your good intentions don't come back to bite you.
In wishing to share wealth, family often tops the list. You can gift unlimited assets to a spouse who is a U.S. citizen free of gift taxes. For a spouse who is not an American citizen, the gift tax exclusion for 2014 is $145,000 after tax. For gifts to children or other non-spousal beneficiaries, the 2014 annual gift tax exclusion is $14,000. A couple can give $28,000 combined. You make gifts with after-tax dollars. Parents, grandparents or other relatives often use the annual exclusion to fund college savings plans.
You may contribute up to $14,000 per child, or $28,000 jointly to a 529 college savings plan. Suppose you had a windfall or inheritance or you wished to lower your taxable estate. You may give up to five years worth of annual exclusions up front to a 529 plan or $70,000, per person or $140,000 per couple, per child. "Front loading" the plan for a younger child has advantages. The money grows free of tax and longer timeframes allow equity-based accounts to ride through market ups and downs, generating growth to offset educational inflation.
Costs for K-12 private schooling, college and post-graduate educations are rising. Can a grandparent or other relative help in other ways? Under the educational exclusion, you can make payments directly to a qualified domestic or foreign institution for tuition free of gift tax. You could pay a granddaughter's tuition of $30,000 and still give her $14,000 under the annual gift tax exclusion.