Let's Look At the Gift Tax in Davenport Iowa and How It Affects Your Ability

to Give Tax-Free Gifts to Your Children

CAN I GIVE TAX-FREE GIFTS TO MY

CHILDREN?

DENNIS D. DUFFY Iowa Estate Planning Attorney

Can I Give Tax-Free Gifts To My Children? www.duffylawoffice.com 2

Estate planning in essence involves arranging for postmortem gift giving. When

you hear about the existence of the estate tax, you may wonder if it is possible

to accelerate this gift giving. Perhaps you can give the gifts while you are still

alive to avoid the estate tax.

For several years after the enactment of the estate tax 1916, this was actually

possible. However, a gift tax was enacted to close this loophole, and it remains

in effect to this day.

Let's look at the gift tax and how it affects your ability to give tax-free gifts to

your children.

ANNUAL GIFT TAX EXCLUSION

The federal gift tax is unified with the estate tax. The maximum rate of the gift

tax is 40 percent.

However, you are not

immediately faced with a 40

percent transfer tax if you give

your daughter an iPad for her

birthday, because there is an

annual per person gift tax

exclusion.

Under Internal Revenue Service regulations, you may give gifts totaling as much

as $14,000 per person to any number of others within a calendar year free of

Can I Give Tax-Free Gifts To My Children? www.duffylawoffice.com 3

the gift tax.

There is no limit to the overall amount, as long as you don't give more than

$14,000 to any one person within a year.

UNIFIED GIFT AND ESTATE TAX EXCLUSION

In addition to the annual gift tax exclusion, there is a lifetime unified gift and

estate tax exclusion. The amount of this exclusion stands at $5.34 million in

2014.

If you gave gifts to someone that exceeded $14,000 within a calendar year, you

could still give the gifts tax-free. This can be done by using a portion of your

unified exclusion.

For example, if you gave your son $14,000 today, this gift could be given tax-

free because of the annual gift tax exclusion.

Let's say that you win the lottery tonight. Your son wants to buy a house, and

he has negotiated a price of $2.34 million. You could use some of your unified

lifetime exclusion to give him the $2.34 million that he needs to buy the house

tax-free.

Your total exclusion was $5.34 million. You will subsequently have $3 million of

your unified lifetime exclusion remaining to apply to future gifts and the value of

your estate as it is being transferred to your heirs after you die.

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TAX EFFICIENCY STRATEGIES

People who expect to pass away in possession of assets exceeding $5.34 million

in value are faced with estate tax exposure. As a result, those who are in this

position must implement tax efficiency strategies.

There are various different ways that you can position your assets to mitigate

your exposure. Utilization of the annual gift tax exclusion can be part of the

plan.

As we previously stated, the amount of the

annual gift tax exclusion in 2014 is $14,000.

Each taxpayer has this exclusion at his or her

disposal. If you are married, your spouse has a

$14,000 exclusion to use, and you have your

own exclusion. In total, as a couple you can

give $28,000 to any number of gift recipients

during the calendar year tax-free.

By doing this you are transferring assets to heirs who would someday be

inheriting them tax-free. The estate planning value of this is self-evident. In

addition, you are steadily reducing the value of your estate for tax purposes as

you give these tax-free gifts.

A couple in possession of assets exceeding $5.34 million in value may view

$28,000 as a relatively small amount of money to transfer tax-free. However, if

you use this exclusion over an extended period of time and you give to multiple

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heirs, it can in fact be quite useful for many high

net worth families.

To use this exclusion you don't have to give

direct cash gift. Family limited partnerships are

popular among people looking for asset

protection and tax efficiency. You could use the

exclusion to distribute shares in a family limited

partnership tax-free on an annual basis.

Conveying assets into an irrevocable trust for

the benefit of someone else can be looked upon

as an act of taxable gift giving by the Internal

Revenue Service. You could use the annual gift

tax exclusion to fund such a trust incrementally

without incurring any gift tax responsibility.

It should be noted that you do not have to use

either of these exclusions to give tax-free gifts to

your spouse. There is an unlimited marital

deduction. This allows you to give unlimited

lifetime gifts to your spouse free of the gift tax.

You could also bequeath an unlimited amount of

money and/or property to your spouse tax-free

using this marital deduction, as long as your

spouse is an American citizen.

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CONCLUSION

It is possible to give tax-free gifts to your children because of the gift tax

exclusions that exist.

High net worth families that are going to be exposed to the estate tax should

discuss tax efficiency strategies with a licensed estate planning attorney.

Utilization of the annual gift tax exclusion could be an effective way to transfer

some of your wealth to your children tax-free.

REFERENCES

Forbes http://www.forbes.com/sites/janetnovack/2012/10/14/the-forbes-guide-to-

estate-planning/

IRS http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Gift-Tax

Can I Give Tax-Free Gifts To My Children? www.duffylawoffice.com 7

About the Author

Dennis D Duffy

Dennis Duffy combines an extensive background in business with a

wide range of legal experience to provide his clients with a uniquely

practical perspective. An attorney since 1989, he practices primarily in

Estate Planning, Wills, Trusts and Probate. Mr. Duffy also offers

frequent educational seminars on a variety of estate planning topics to

both the general public and private groups in the Quad Cities area.

Experience

Mr. Duffy has been practicing law since 1989, when he joined the general practice firm of

Bozeman, Neighbour, Patton&Noe in Moline Illinois. In 1990, Mr. Duffy and five other

attorneys founded the law firm of Anderson & Nelson, with offices in Rock Island, Illinois and

Davenport Iowa; the firm eventually grew to 12 attorneys, with Mr. Duffy as managing

partner. He founded Duffy Law Office in 1995.

Before returning to school for his advanced law and business degrees, Mr. Duffy worked for

nearly a decade for Per Mar Security & Research Corp. in Davenport, as Vice President.

Mr. Duffy is a member of the American and state bar associations of both Iowa and Illinois as

well as the Scott and Rock Island County Bar Associations.

He is an executive member of the American Academy of Estate Planning Attorneys. He is co-

author of the book Estate Planning Basics – A Crash Course in Safeguarding Your Legacy.

Also, the American Academy of Estate Planning Attorneys announced that Mr. Duffy was

honored with the Academy Fellow designation. The Fellow program recognizes Academy

Members who demonstrate advanced expertise and significant practical experience in the

estate planning, trust, tax planning, guardianship, probate and estate administration fields.

Duffy Law Office

Helping Families Preserve their Wealth

www.duffylawoffice.com

1840 E. 54th Street

Davenport, IA 52807

(563) 445-7400