Tuesday Tip: Do NOT Forget Tax Neutral Transfers, by Robin A. Lloyd, Sr., Esq.
Many times while talking to clients about the needs of their children or grandchildren they mention their use of the annual exclusion ( $14,000) or excess gifts. Others have established Dynasty Trusts or other conduit entities from which they want to use funds.
All of these approaches are acceptable, except the excess gifts. But more importantly you need to consider the use of the funds. The HEMS standard can be applied here for the most part. Especially if the funds are being used for health or education. If you pay the funds directly to the health care provider (Doctor, Dentist or Hospital) or to the Educational Institution it will usually not be gift taxable to you. This is what I mean by “Tax Neutral.” If you are going to have a taxable Estate, this may be a good way to reduce your Estate.
Other factors may go into these decisions, for example, income tax on funds used, but from an Estate Tax or Gift Tax point of view this works.