Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug helps you navigate tax efficient gifting strategies to help a friend transfer wealth to his adult son for school tuition and a future home purchase.
Consider this Scenario:
Your friend Gus is considering helping his son, Walter, with the cost of paying tuition and purchasing a new home over the next couple of years. Walter has two years of school left (including this year) and he is planning to purchase a home next year.
The cost of Walter’s tuition is $10,000 per year and Walter has asked Gus for another $30,000 to help cover the cost of the down payment on the house he hopes to buy.
Gus is considering a few different options and wants your opinion on how to transfer wealth tax efficiently to his son Walter:
Option 1) Give Walter a gift of $50,000 right now to cover the cost of two years of tuition and help with the cost of the down payment on the house.
Option 2) Give Walter a gift of $10,000 right now to cover the cost of tuition for this year and then give Walter a gift of $40,000 next year to cover next year’s tuition and help with the cost the down payment on the house.
Option 3) Give Walter a gift of $25,000 this year and $25,000 next year to cover the cost of tuition for both years and help with the cost of the down payment on the house
Option 4) Pay the tuition directly this year and next year and give Walter a gift of $30,000 next year to help with the cost of the down payment on the house
Option 5) Pay the tuition directly this year and next year and give Walter a gift of $15,000 this year and $15,000 next year to help with the cost of the down payment on the house
Which one of these options do you think would be the best option for Gus?
Solution:
Option 5 is probably the best answer.
You can gift any person up to $15,000 per year without being subject to any tax consequences. Gus can make unlimited gifts in the form of qualified educational expenses (such as tuition) so long as he pays the institution providing the education directly.
Option 5 is the only one of the options where Gus does not exceed the $15,000 per person per year gift threshold in one or both years.
Gus should work with a financial advisor and/or accountant to understand the tax consequences of his various gifting scenarios.
Are you looking for tax efficient ways to provide your children with monetary gifts? If so, meet the WrapManager wealth management advisors then call 1-800-541-7774 or contact us here to get in touch with one of our Wealth Managers for guidance.
This quiz is intended for informational and illustrative purposes only. This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information presented is general information that does not take into account your individual circumstances, financial situation or needs, nor does it present a personalized recommendation to you. The information and opinions contained in this material are derived from sources deemed reliable, are not all-inclusive and are not guaranteed as to accuracy.
The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice, either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.
