Our expert: Jennifer Zegel is a Philadelphia-based estates attorney who has counseled many clients on the best way to give money gifts to their grandchildren. Here, the easiest ways to give a tax-free gift.
Annual gift tax exclusion. "This gift technique works for everybody, not just grandchildren," Zegel says. The maximum you can give right now is $13,000; the amount moves in multiples of $1,000 along with the consumer price index. Anybody can give that amount to anybody. A married couple can give $26,000 as a joint gift. And there's no limit on the number of people you can gift, so if you have a dozen grandchildren and a lot of money, you can give them each $13,000 (or $26,000 as a couple), year after year. There are no taxes owed on this money. You don't have to complete a report or file a return. Just write a check.
Annual education exclusion. Here's another tax-free way to gift money to anybody, which Zegel says grandparent use a lot. If you want to look up the regs, it's IRS code section 2503E. Under this rule, any person can pay for tuition (not room and board or any other education-associated expenses like books) for someone else without any gift tax owed. This money can pay for education ranging from kindergarten through college. One important qualification: the money must be paid by the donor directly to the educational institution. Since there's no dollar limit, it's a great way to give large gifts without tax repercussions.
This is different from the better-known 529 plan, which saves for future education and is subject to your own state's laws.
Annual medical exclusion. This is a twin provision to the education exclusion under the same section of the IRS code. In this case, your gift pays medical expenses. Again, the money gifts must be paid directly to a medical institution or insurance company and once again, there is no dollar limit.
For more information: Jennifer Zegel practices law at Reger Rizzo & Darnall.