Going forward with the knowledge that you have the ability to provide your loved ones with significant financial resources after you pass away can be a comforting feeling. But at the same time, you have to ask yourself if you are removing incentives that would lead your younger heirs to the fulfillment of their full potential as human beings. With this in mind there are certain things that you can do to guide them in the right direction, and there is one course of action that you can take while you are still alive to see the results.
People that are in a position to give truly life-changing sums of money to their loved ones are going to be exposed to the federal estate tax. As a result, if you are in this position you are going to have to look for ways to mitigate your estate tax liability and this can be done by reducing the taxable value of your estate.
Giving gifts is one way of doing this but of course there is a gift tax in place that carries the same rate as the estate tax with which it is unified. However, there are some exemptions and one of them allows you to pay the college tuition of any number of students equaling any sum of money free of taxation.
This exemption only applies to tuition, but you are also allowed to give as much as $13,000 per year as a tax-free gift to an unlimited number of recipients. So you could use this exemption to provide some additional financial resources to your student, and if you are married you and your spouse you could give gifts totaling as much as $26,000 per year without incurring any gift tax liability.
Educational gift giving is a win-win situation for all concerned and it is something to consider when you are crafting your legacy.
Saul Kobrick
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