Basic Gift Giving Strategies for Everyone


Volume 2 • Issue 12 • December 2012

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business planning and charitable planning issues.  This month's issue will discuss some basic gift giving strategies for everyone.  If you are interested in learning more about the ideas discussed in this newsletter please contact us for a free initial consultation.

As the holiday season is upon us and with the so-called fiscal cliff looming, there is much discussion of once-in-a-lifetime giving opportunities for the super wealthy. However, with the clamor about major gifting at an apex, it is important not to forget some of the basics. This month’s newsletter is devoted to basic gifting techniques available to people in all circumstances. Generally, all gifts are taxable. However, there are many exceptions to this rule. For example:

  • Present gifts to an individual that are not more than the annual exclusion for the calendar year;

  • Tuition or medical expenses paid directly to an educational or medical institution;

  • Gifts to your spouse;

  • Gifts to political organizations for its use;

  • Gifts to charities.

  • A few of these opportunities are discussed in greater detail below.

Annual Gift Tax Exclusion  

In 2012, the Annual Gift Tax Exclusion amount allows each person to give away up to $13,000 per person/per year.  This Annual Gift Tax Exclusion amount is scheduled to increase to $14,000 per person/per year in 2013.  The gifts can be in cash or in kind.  This amount can be given to as many people as you want in a given year.  A husband and wife jointly give up to $26,000 per person/per year ($28,000 per person/per year in 2013).  In order to count, the gifts must be of a present and immediate interest. Gifts of a “future interest” do not qualify for the exclusion.  The amount is cumulative and includes all gifts given to an individual during the year.  Thus paying a $4,000 debt, giving a birthday present worth $1,000 and then a year-end cash gift of $13,000 would mean total gifts of $18,000.  The gift amount in excess of the annual exclusion will require the filing of a gift tax return and the use of a portion of the lifetime gift tax exemption.

Gifts for Medical and Educational Expenses

Gifts for medical and educational expenses are not subject to the gift tax so long as payment is made directly to the medical or educational institution.  In order for an educational organization to qualify, it must be “one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.”  In addition, to qualify for the Educational Exclusion the payment can only be for tuition.  Payments for books, supplies, room and board, etc. do not qualify.

Medical expenses must be paid directly to the provider and must be for medical care that is deductable for income tax purposes.  The Medical Exclusion does not apply to amounts that are reimbursed by the recipient’s insurance.

529 Plans

Another great gifting opportunity is presented by 529 College Savings Plans. Contributions to these plans qualify for the Annual Gift Exclusion and up to five years worth of exclusions can be used in one year.  This would allow for a lump sum $65,000 tax free gift in 2012.

Gifts to CharitiesIf you wish to give to a charity, make sure that the charity is a qualified charity. Unfortunately, the season of giving can also be the season of fraud.  Check with the IRS at to find out if you are dealing with a qualified charity.  Additionally, make sure you keep a record of any donations.

Other Strategies

Other gift giving strategies involve the timing and manner of gifting.  If you are concerned about the recipient’s ability to handle the gift, consider gifting into an irrevocable trust.  Done properly, the gift can still qualify for the annual exclusion and allow you to continue some supervision over the gift.

Another wise strategy is to give away property that you expect to appreciate.  This will allow the growth to occur outside of your estate.  Also, beware of giving gifts to individuals of appreciated property.  A lifetime gift to an individual transfers your current tax basis in the asset.  An inheritance at death will allow the recipient to claim a tax basis equal to the fair market value of the asset at the date of death.  If you are making a gift to charity, the opposite is true.  Gifts of appreciated property make great gifts to charity as the charity will pay no capital gains upon sale of the asset.


Tis the season to give.  But, remember, give smart.  If you are thoughtful and intentional about your gifting you can do so in a manner that will maximize the tax benefits and the benefit that you can pass on to the recipient.

This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.