How to Give Money to Children or Relatives

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Giving money to children or relatives requires you to take a few IRS-related rules into consideration. Give money to children or relatives with help from a certified financial planner TM professional with over a decade of experience in wealth management in this free video clip.

Part of the Video Series: Financial Planning
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Video Transcript

Hi, my name is Samantha Fraelich and I'm a Certified Financial Planner Practitioner. I'm here today to teach you how to give money to your children or relatives. No, I'm not going to give you a lecture on what kind of car you should buy and what dollar amount is appropriate for some type of occasion. What we're going to talk about is why the IRS cares about what you gift to another person. Every year the IRS sets a dollar amount that you're allowed to give to another individual without having to file a gift tax return. In 2012, that amount is $13,000. Every year, the IRS will increase that amount for inflation and in 2013, that amount will be $14,000 per person. Now, let's say that you're married, you can give $13,000 to another person and your spouse can also give $13,000 to that same individual. Let's say you're married with two children. You and your spouse can each give $13,000 to that child and then another $13,000 each to the other child. This would allow you to give up to $54,000 per year without having to file a gift tax return. Let's talk about the easiest way that you can make a gift to a child or relative without even having to worry about that $13,000 or next year, $14,000 limit. If you make a check payable directly to a medical or an educational institution, the IRS doesn't count that for $13,000 per year gifting limit. That's one of the easiest ways you can avoid that rule. If you do exceed the $13,000 per person, per year, you should talk to a tax advisor about filling your gift tax return. It doesn't mean that you have to pay a tax when you file it, it simply gets reduced from your lifetime gifting exemption amount. And every year that changes according to what the Congress decides. This year is a big unique because that amount is 5.12 million dollars. That said, some more sophisticated strategies that you may want to use for gifting if you are a higher net worth individual maybe a gift to an irrevocable life insurance trust in the form of perhaps paying premiums for a life insurance policy. Or you could do an outright gift to a credit shelter trust. You could forgive a loan that you've given one of your kids or you could just make a gift outright to another trust. The next time you want to give money to your children or relatives, make sure you consider whether you're legally required to file a gift tax return. As always, this is for informational purposes only and you should talk to a tax or legal advisor about what's appropriate for your personal situation. Again, I'm Samantha Fraelich, a Certified Financial Planner Practitioner and I hope you found this helpful.


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