Three Ways to Give--Without Worrying About Gift Taxes

Looking to provide financial help to family members? Here are three ways you can pass along money without worrying about the federal gift tax.

First, you can take advantage of the annual gift-tax exclusion, which is currently $13,000 (or $26,000 for a couple). That's the sum you can give to as many people as you wish in 2012 without filing a federal gift-tax return. As an added bonus, gifting will shrink the size of your taxable estate. This could be a plus if the federal estate-tax exemption falls from this year's $5.12 million to $1 million in 2013. That may happen if Congress fails to extend the Bush-era tax cuts. Gifting could also help with state estate taxes, which often kick in at much lower asset levels.

Second, you can help with a child or grandchild's college costs by contributing as much as $65,000 in 2012 to a 529 college-savings plan and counting that money as your gift for the next five years. Your spouse could also gift $65,000 to the child or grandchild's 529 plan. That would remove a large sum from your estate, as well as any subsequent interest, dividends or capital gains the money might earn. One warning: If you elect to treat a gift as being made over five years and you die before the end of that five-year period, that portion of the gift that was allocated to the period after your death would be included in your estate.

Finally, you can pay a family member's medical expenses without worrying about gift taxes or the annual gift-tax exclusion, as long as the payments are made directly to the medical providers involved or to the insurance company. Direct payments for educational expenses are also exempt from the gift tax.

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Citigroup, Inc. and its affiliates do not provide tax or legal advice. You should seek advice based on your particular circumstances from an independent tax advisor. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

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You should consider the investment objectives, risks, charges, and expenses of any 529 Plan Investment Options carefully before investing. This and other information is contained in the 529 Plan Disclosure Document and official statement, which should be read carefully. Before investing, you should read the Plan Disclosure Statement and official statement carefully and consider whether your state of residency-- or your intended Designated Beneficiary's state of residency--offers any benefit, such as a state tax deduction, which is only available for investments in that state's 529 savings program.

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