A Granddaughter Does Not Owe Gift Tax on Money She Inherits for College Tuition

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney

I’m always asked about gift taxes when clients want to give away property to a loved one while alive or upon death. This frequent question generally involves gifts for college, a wedding or other major life event.

The short answer is no gift tax is owed, but you will have to file a gift tax return (IRS Form 709) if you give a person more than $15,000 in any one year. The amount in excess of $15,000 will be deducted from your lifetime unified gift and estate tax exemption, currently $11 million in 2018. That’s not even a reality for 99.5% of Americans.

If your estate is not taxable, the gift tax return is just a formality; there will be no estate tax liability when you pass away. If, on the other hand, your estate is taxable, you should preserve as much of your lifetime exemption as possible, in order to pass as much tax-free money as possible to your heirs.

Gift taxes and estate taxes are always political football. Even if your estate is not taxable now, it could become taxable in the future if the government reduces the lifetime exemption. Better to be safe than sorry: Consider gift of

the tuition directly to a child’s school. But, while there will be no gift tax involved, income tax issues should be considered depending upon what type of property is involved (i.e. cash vs low basis real estate)

To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

 

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