Basics of Gifting
By: Elizabeth Silvestri, CFP®
The Henssler Financial Group Position Paper

The Hensler Financial Group Wealth Management

One goal of estate planning is to ensure enjoyment of property while the owner is alive and then, at death, transfer it according to their wishes. Some people believe that they receive the greatest benefits from estate planning when they transfer property before their death, enabling them to witness the outcome. This is accomplished through an estate-planning tool called gifting. A person (donor) transfers property to another (donee) for various reasons. Among them: emotional, business, to help finance a college education, or to pay medical costs. Gifting can reduce the size of the estate that must pass through court administration. This can cut probate costs and, to some extent, federal estate taxes. The annual gift exclusion for 2008 is $12,000 per person.

Requirements For A Valid Gift

To be valid, a gift must usually meet the following four requirements:

  • The donor must be capable of transferring the property;
  • The donee must be capable of receiving the property;
  • There must delivery to and acceptance by the donee's agent, and
  • There must be donative intent on the part of the donor.

Valuation Of A Gift

For gift tax purposes, the value of a gift is its fair market value at the date of the gift.

Deductible Gifts

Some gifts are fully deductible, thereby reducing the taxable gift amount to zero:

  • Gifts to a spouse are fully deductible, provided they are not a terminal interest (refers to qualified terminal interest property, or QTIP. Qualified means it's property that qualifies for the marital deduction. Terminal means the surviving spouse receives income interest during his/her lifetime but that interest terminates at his/her death);
  • Gifts to qualified charities are fully deductible, and
  • Payments made directly to an educational institution for tuition and payments made directly to a provider of medical care on behalf of an individual.

Gift Splitting

Gift splitting treats a gift of property owned by one spouse as if it was gifted one-half by each spouse. Both parties must consent to split the gift in order to take the annual exclusion for each part of the gift. If each spouse makes a gift to a third party, the gift can be considered as if each gifted one half. If split, each spouse can take the annual exclusion for their part of the gift. In 2008, gift splitting allows married couples to give up to $24,000 to a person, without making a taxable gift.

Gift Filing and Payment Requirements

A gift tax return (Form 709) must be filed by any individual donor who, in any calendar year, gave:

  • More than $12,000 (in 2008) to any nonspouse donee;
  • A gift of a future interest in any amount; or
  • A gift for which a spouse elects gift splitting.

Gifts are an important estate-planning tool for those with taxable estates. Gifts can also accomplish income tax savings. It is important to point out that gifting should be examined carefully. Those making the gifts should be sure they are not depleting assets to the point they do not have enough for their own support. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
 
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