Estate Tax Update January 2015

In this recurring piece, I’d like to inform you about recent tax news that can affect or guide your estate planning. In this edition, we’ll cover two topics: inflation rates and the gift of tuition.

Inflation Rates

Every year the IRS releases inflation-adjusted values to various code provisions. Depending on the year, values may or may not rise or fall. Well, recently the IRS announced the 2015 values for Estate and Gift Taxes. Here are the takeaways:

• The lifetime gift and estate tax exclusion will increase by $90,000 to $5,430,000.
• The generation-skipping transfer tax exemption will also increase by $90,000 to $5,430,00.
• The annual gift tax exclusion will not increase and stays at $14,000 per year.

See the IRS Revenue Procedure here, IRS Rev. Proc. 2014-61.

Gift Tax Savings, Paying Grandchildren’s Tuition

Generally, gifts are taxed to the extent they exceed the $14,000 annual exclusion. However, there is a solution for many clients who have grandchildren in college or private school. The IRS has established unlimited gift tax exclusion for tuition. This exclusion allows grandparents to pay tuition directly to an educational institution without triggering gift or generation skipping taxes.

Here are some of the most important facets of the tuition exclusion:

1. This exclusion does not reduce other annual or lifetime gift exclusions.
2. The amount must be paid directly to a qualified educational organization.
3. Tuition does not include room and board, books or other miscellaneous expenses.
4. No gift tax return needs to be filed.
5. Exclusion available for tuition of non-relatives.

This exclusion, especially given rising tuition costs, can help reduce an estate’s total tax burden and put your grandchildren in a position to graduate with less or no debt. Other minor restrictions apply but this exclusion is relatively easy to utilize in your overall estate plan.

See the full Treasury Regulation here, CFR 25.2503-6.

If you need assistance with probate or with developing your Estate Plan, please call one of our Probate Lawyers or Estate Planning Attorneys for a free consultation. We have Estate Planning Attorneys in New Jersey, Pennsylvania, New York, and Florida.

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