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The ProVise Advisor Team
BETTER TO GIVE…
As we approach the holiday season and the end of the year,
our thoughts turn to gifts for family and friends, and maybe
they are asking you for a list of gift giving ideas too. So here are
a few thoughts on financial gift giving.
In 2020, you may make a gift up to $15,000 each (adjusted
for inflation annually) to as many people as you want without
incurring a gift tax, having to file a gift tax return (in most
situations), or the necessity of using part of your lifetime
exemption of $11.58 million. A couple can double that amount.
Let us say you have three children. That means you jointly can
transfer $90,000 of wealth to them and another $90,000 to their
spouse and $30,000 to each grandchild should you desire.
But it gets even better! Suppose you do this over a five-year
period. You will have transferred $150,000 to each child for a
total $450,000. If the child invests the money at a hypothetical
return of 5%, it will be worth $165,750 for each. In ten years, it
will grow to $377,300 and in twenty years it will almost reach
$1 million. What a nice nest egg for retirement.
But it gets even better! If you have a grandchild attending private
school or going to college, you have additional opportunities.
Regardless of how high the qualified expenses might be, if you
make a payment directly to the school, the amount of the gift is
unlimited. If qualified educational expenses are $50,000 a year
for college, you can transfer $200,000 of wealth. If the grandchild
goes to professional or graduate school, it could be a whole lot
more. What a gift! All that education and no debt in starting a
professional career.
But it gets even better! In the alternative, for younger
grandchildren you can contribute to a 529 education account that
grows tax free if the money is withdrawn for qualified education
expenses. You can even jump start this program by putting in
five years of gifting at one time - $75,000 per grandparent. Thus, a
About ProVise Management Group, LLC: ProVise is a financial planning and investment management firm registered with the Securities and Exchange
Commission (SEC) and has been in business since 1986. Our 15 professional advisors serve approximately 1100 clients in over 30 states. As of 9/30/2020 we
were managing approximately $1.51 billion for our individual, corporate, not-for-profit and 401k retirement plans. Please visit our website at: provise.com.
Investment Advisory Services offered through ProVise Management Group, LLC. The information herein is general and educational in nature and should
not be considered legal or tax advice. Tax laws and regulations are complex and are subject to change.
90 TAMPA BAY MAGAZINE | NOVEMBER/DECEMBER 2020
$150,000 gift from loving grandparents at the time the child is born
would be worth $360,000 at age 18 assuming the same hypothetical
return. The only catch here is that you cannot make an additional
gift for the subsequent five years to the same grandchild.
But it gets even better! Suppose the grandchild does not need
the money in the 529 plan because she/he gets a scholarship,
goes to college but does not use all the money, or does not go to
college at all. What happens? The money can be used for a post
graduate education or passed on to siblings and other family
members for their use.
But it gets even better! Suppose that you make the gift to
someone with earned income and he/she qualifies for a Roth IRA
which grows tax free. For someone under age 50 who qualifies,
the recipient can put $6,000 a year into a Roth IRA. That gift at
our 5% return given at age 22 is worth almost $49,000 at age 65.
Do this every year for the next ten years and the retirement fund
will have grown to $377,000.
But it gets even better! Suppose you have a great deal of wealth
and you want to give more than $15,000 per year. Say you are
age 65, expect to live at least another twenty years, and you
want to give $1 million. Then the first $15,000 will be considered
an annual gift and the remaining amount will use part of your
lifetime exemption of $11.58 million. There is still no gift tax,
but you will have to file a gift tax return.
But it gets even better! That million dollars over the next 20
years at our 5% return grows to $2.65 million. Thus, you removed
not $1 million from your future estate, but $2.65 million. Assuming
you have a taxable estate, this could save over $1 million in
potential estate taxes.
We have lots of other gift giving ideas, so why not give us
call for a complimentary consultation in either our Clearwater
or Tampa office. Happy Holidays!
/provise.com