EDITOR’S NOTE: The following two questions to Dr. Don both involve changes in gift tax rules.

Dear Dr. Don,

Can I give my daughter a $13,000 gift in equal monthly amounts rather than all at once?

The IRS Web page “Frequently Asked Questions on Gift Taxes” gives additional detail on what can be excluded from gifts

— John Jointly

Dear John,

You’re referring to the annual exclusion for gifts. It was raised to $13,000 for the 2009 tax year from $12,000 in 2008. If you and a spouse split gifts, you can give your daughter a combined $26,000 in 2009 without triggering the gift tax.

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts:

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.

The gifts to your daughter can be made in equal monthly installments. The timing is important only in terms of what tax year the money was a received as a completed gift.

If you give up to the limit of the annual exclusion, remember to total all gifts made to your daughter during the year, not just the monthly gifts.

Dear Dr. Don,

How much can I give my grown children without them having to pay taxes in a year? Can I also give to my grandchildren?

— Brenda Bequest

Dear Brenda,

The children, or grandchildren, aren’t responsible for the gift tax, you are. That said, you can give up to the annual exclusion with no gift tax due. The annual exclusion for gifts in the 2009 tax year is $13,000.

Split-gifting with a spouse allows you to double the annual exclusion to $26,000. Education and medical exclusions, as presented in my reply to John (above) also avoid gift taxes.

The estate tax and lifetime gift limitations are in a state of flux. If you’re looking to gift more than the annual exclusion amount, work with your tax professional and/or estate planning attorney to find the best and most tax-efficient way to pass your wealth to your beneficiaries.

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