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Key considerations when gifting assets to loved ones

If you're thinking about gifting assets to loved ones this holiday season, you should know that there are a few ways to do it--and a few restrictions, if you want to do it in a tax-smart manner.

Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.
Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.

If you're thinking about gifting assets to loved ones this holiday season, you should know that there are a few ways to do it-and a few restrictions, if you want to do it in a tax-smart manner.

In 2015, you can gift up to $14,000 to as many individuals as you'd like before you're subject to eventual gift taxes. If you're married, you and your spouse can give up to $28,000 (where the husband and wife each give $14,000). That means that if you have three kids, you and your spouse can give each child $28,000, for a total of $84,000, without any kind of tax penalty.

When you exceed the annual limit

If you give above that amount, that's where things start getting tricky. Let's say that you and your spouse decide to give your daughter $50,000. If you gave $36,000 but your spouse only gave $14,000, only you would be required to file Form 709, the U.S. Gift Tax Return, by the tax deadline of the following year. This form simply requires you to list the amount by which you exceeded the annual limit, and it effectively subtracts that amount from your lifetime exemption, which in 2015 is $5.43 million.

It's important to note that you will not be taxed on that amount at that time; you are only subject to gift tax once you exceed the $5.43 million lifetime exemption. While that may seem like a hefty sum of money, you'd be surprised how many people come perilously close to it.

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Legal ways to gift money above the annual limit

That said, there are some legal ways to gift more than the annual exclusion without subjecting yourself to an eventual gift tax-it simply depends on what that gift will be used for. Let's say that the daughter who was gifted $50,000 in our example above intended to use that sum to pay for various expenses associated with her upcoming wedding. If Mom and Dad had simply purchased those items directly from the wedding vendors, there would generally be no gift tax due. To be prudent and keep your bases covered, we recommend documenting all of those purchases, from the dressmaker to the florist, in case the IRS comes calling.

Another situation where a gift can be made tax-free is by paying for medical or dental expenses. As with all of the examples where tax-free gifting is involved, you must directly pay the provider. If Aunt Sue loses her job and can't pay her medical bills, for example, you can't float her $20,000 tax-free. If you want to pay $20,000 worth of Aunt Sue's medical bills, you'll need to directly pay the health care provider.

Of Special Note: College Saving & Spending

If your gift will be used to help pay for college expenses, there are two key items to be aware of. Contributions to a 529 plan are considered gifts. They're a great gift, what with the potential tax-free growth and withdrawals, but they're a taxable gift if you exceed the $14,000 limit. If you're looking for a way to help pay for college, you may want to wait until your beneficiary is actually in school. Directly paying tuition is not considered a taxable gift. Consider the difference: If your primary objective is to help pay for school without incurring any taxes, you can either contribute up to $14,000 a year to a 529 plan, or you can directly pay your loved one's tuition bill (whether it's $6,000 or $60,000). Only your situation will determine the best course of action for you.

Taxes are complicated, and there are many exceptions and restrictions in today's tax code.

If your goal is to gift a significant amount of your assets over time, we recommend working with a financial adviser or tax specialist to help determine your most tax-efficient plan.

By Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-

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hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at

yourmoney@wealthenhancement.com . Securities offered through LPL Financial, member

FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth

Enhancement Advisory Services are separate entities from LPL Financial.

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