Holiday Gifts That Will Boost Financial Security

While the Tax Cuts and Jobs Act may drastically upset your year-end tax planning, there’s at least one area it won’t completely upset: family holiday gifts.

Neither the House nor the Senate tax plan touches on the annual gift tax exclusion, and both preserve valuable strategies for contributing to education funds.

If you want to pass assets to your children and grandchildren this year, consider one of five strategies:

1) Give away the green stuff

You can donate up to $14,000 per person in 2017 without using your lifetime gift tax exclusion (currently $5.49 million).

This amount doubles if you and your spouse donate together. You can also increase donations by donating to your child (or grandchild) and spouse — up to $56,000 this year from couple to couple.

While handing out a big check on Christmas morning might seem festive, you risk messing up your strategy if you wait until the last minute, said Jody King, vice president and director of client services at Fiduciary Trust Company.

“Handing out checks to your kids isn’t enough,” King said. “You have to make sure they actually cash the checks, and technically they have to clear the bank before the end of the year.”

2) Pay a tuition bill

You can pay tuition directly even if you also max out your annual donation exclusion, said Suzanne Shier, chief tax strategist for Northern Trust Wealth Management. Neither the House nor the Senate tax plan changes this strategy.

“Anyone can do it for any beneficiary, in any amount, for any level of education,” Shier said.

Handing out checks to your children is not enough. You need to make sure they actually cash the checks.

Jody King

Trustee trust company

However, you can’t write the check to your grandchild, and you can’t cover room and board or other non-school expenses under this strategy, she said.

“A refund will not qualify for this,” Shier said. “Get that bill and pay it direct, and limit your payment to the tuition amount.”

3) Make a 529 turbocharged contribution

Both tax regimes preserve benefits of 529 accounts and would allow at least a portion of the account funds to be used not only for higher education expenses, but also for K-12 expenses, Shier said.

Parents and grandparents can also collect 529 contributions by pocketing five years of gifts at a time — up to $140,000 in contributions this year from a married couple, Shier said.

“Particularly for grandparents, it’s a way we’re seeing to really set aside a substantial nest egg for college,” she said.

In some cases, grandparents should consider opening their own 529 account – and naming their grandchild the beneficiary of the account – either as an alternative or in addition to contributing to an account held by the grandchild’s parents. , King said.

If Grandma lives in a different state than her children and grandchildren, she could get tax relief by opening an account in her own state. And if funds from the grandma’s account aren’t used until the grandchild’s senior year of college, they won’t be considered in financial aid calculations, King said.

4) Unload some shares

If you plan to donate stock, this may be the year to do so.

The Senate bill would dictate a first-in, first-out treatment when determining the cost basis of gifted securities, said Pam Lucina, executive director of advice, planning and fiduciary services for BNY Mellon Wealth Management. But this year, donors can still choose to use shares bought earlier or later, giving them more control over how much of the tax bill the recipient ultimately pays, she said. .

Although donors often prefer to give high-base stocks – reducing an adult child’s ultimate tax bill – it may be a greater financial gain for the family to give low-base stocks if the child will pay a rate of lower capital gain when selling the shares. , said Gary Schatsky, president of ObjectiveAdvice.com. No tax bill alters the lowest long-term capital gains rate of zero percent.

5) Build a Trust