I often consider what clients care about most. First, clients are often looking for the best way to gift to their children or grandchildren.
Clients give to their children and grandchildren in many different ways. Parents and grandparents give to their children and grandchildren in countless ways, from the moment of birth, they are giving of their love, affection, and nurturing.
Parents and grandparents often want to give for education. A 529 plan is designed for this purpose. By gifting to such a plan, the donor can remove the assets from their own estate and yet retain control over the assets. This may be estate planning’s “Holy Grail.” Not only may a gift to a 529 plan qualify for an annual exclusion, with an election, it may qualify for the use of up to 5 years of exclusion. That means that a donor may make a contribution of $70,000 completely excluded from the gift tax.
In addition to gifting to a 529 plan, donors may give an unlimited amount for tuition if paid directly to an educational institution. A similar exclusion applies for the payment of medical expenses directly to a medical provider. These exclusions are provided in the often-overlooked Section 529(e) of the Internal Revenue Code.
Of course, direct gifts to either a child or grandchild will qualify for the $14,000 annual gift tax exclusion (and GST tax annual exclusion).
However, often clients do not want to gift directly to their child or grandchild, but want to keep the assets in trust. An irrevocable trust with limited withdrawal powers can be a great way to obtain the annual gift tax exclusion even though the gift is in trust.
Whether gifting outright, in trust, or via a 529 plan, clients often want to gift for the children’s and grandchildren’s benefit as part of the legacy they leave.
Food for thought,
Bob