By now you have already been buried with requests from charities near and far, worthy and not-so-worthy, hoping to share in your good cheer during what is inevitably called the season of Giving. If you’re like many parents (and grandparents) I know, this may also be the season when you make gifts to your children and theirs. So before you start writing those checks or making those on-line donations, here are (1) my legal tip for giving to your family members and (2) my picks for making charitable gifts to organizations that you may end up needing later in life. Give to these organizations, as they say, and you may end up receiving a hundredfold.
TIP: THERE IS (ALMOST) NO LIMIT TO HOW MUCH YOU CAN GIVE
There is no limit on the size of gifts you can make to charities. But what about gifts to individuals who are not charities? Nearly everyone I speak to tells me there is a $14,000 limit to how much they can give to family and friends. They never know exactly why. Here are some basic “giving facts”:
- The receipt of a gift is not income for federal or state income tax purposes. So whatever you give to your children, relatives, and friends, they receive income tax-free.
- There is no Massachusetts gift tax.
- For most people, there is no federal gift tax either, since the federal exemption is quite high. Unless the combined total of the gifts (not including gifts of $14,000 or less per person per year) you make over your lifetime exceeds $5,430,000, you have no federal gift tax concerns. You also have no federal estate tax concerns.
- The $14,000 limit that everyone “knows” about is called the annual exclusion amount. It is the amount you can give to any number of persons each year without having to report the gift to the IRS. In general, it will only affect you, if at all, after you die. Here’s how:
- For federal estate tax purposes, there will be no federal estate tax unless your taxable estate is over $5,430,000 when you die. This is the federal unified exemption amount as of 2015. The taxable estate is computed by subtracting the total amounts by which your gifts to any one individual in any one calendar year exceeded $14,000. These gifts are reported on gift tax returns to keep track of your total “taxable” gifts. In other words, if you give $24,000 to one of your kids this year, then die in 2015, the size of your federal taxable estate that will not be subject to federal estate tax will effectively be reduced by $10,000, from $5,430,000 to only $5,420,000. But do you care? Only if your estate is over $5,420,000.
- The only real tax consequence of giving more than $14,000 to someone in one year may occur at the state level, if you die a resident of Massachusetts. The Massachusetts estate tax system includes an exclusion allowing taxpayers with taxable estates of less than $1,000,000 to pay no estate tax. However, the Massachusetts definition of the “taxable estate” is the same as the one used for federal estate tax purposes, so it goes down to the extent that you make annual gifts over $14,000 to someone. Using the same example as above, if you give $24,000 to one of your kids in 2014 and then die in 2015, your exclusion will be reduced to $990,000, making the extra $10,000 subject to Massachusetts estate tax, if your estate exceeds $990,000. If you are worried about this, you should talk to your accountant or tax lawyer before making the gift.
- Married couples can split gifts and make combined gifts to any one person of $28,000, even though one spouse gave more than $14,000 and one spouse gave less.
PICKS: THE ALZHEIMER’S ASSOCIATION AND YOUR LOCAL ASAP
If you read my blog posts, go to my seminars, or visit my YouTube channel, Elder Law with Frank and Mary (http://www.youtube.com/elderlawfrankandmary), you are probably doing it because you worry about getting Alzheimer’s or some other disease that causes dementia, or someone you love already has it. If you are or will be in that situation, you have a real stake in making sure that the Alzheimer’s Association (http://www.alz.org/) is there to help, with its 24-hour hotline, caregiver support groups, information programs, and so much more. The organization only exists as a result of the private contributions of you and others. By supporting the Alzheimer’s Association, you can be sure that it will be around when you need its support.
Another organization also needs your help. It would be very difficult for a lay person to figure out the array of government programs available to help seniors. In every region of Massachusetts, that is the job of a certain non-profit entity called the Aging Services Access Point (ASAP). While these agencies receive some government funding for the work they do, private donations help them provide more diverse and helpful programs. I work regularly with two of them. Baypath Elder Services (http://www.baypath.org/) helps seniors in the Boroughs+ area (the four Boroughs plus Hudson and Hopkinton) and in eight other communities stretching east to Wayland and Natick. Elder Services of Cape Cod and the Islands (ESCCI) (http://www.escci.org/) does the same thing on Martha’s Vineyard and Nantucket, as well as throughout Cape Cod. They deserve your support if you want to make sure that your ASAP is there when you need it.