by Guest Writer Attorney Neil Cohen

Planning for the different gifting strategies that are available to reduce your estate for estate tax purposes can be difficult.  The strategies range from the simple to the complex.  As you might imagine, a simple strategy probably will not reduce the value of your estate as much as a complex strategy; however, the strategy that works best for your neighbor may not work best for you.  You need to be comfortable with the level of complexity that is created by whichever gifting strategy you use.

Part I of this article will discuss the annual exclusion and the federal gift and estate tax exemption amounts.  Part II will discuss the various gifting strategies that work with the annual exclusion and the federal exemption amounts.

Annual Exclusion

The annual exclusion amount under the Internal Revenue Code limits the amount of the gift that you can give to a recipient each year without any gift tax consequence.  The number of recipients, however, is not limited.  In 2016 the annual exclusion amount limits gifts to $14,000 per recipient, or $28,000 if your spouse agrees to “split” the gift with you.  If you have enough family members, you can remove a large amount of value from your estate without much effort.

There are two exceptions to this limit. The first exception is for either (i) any tuition payments (but not room and board, books or other fees) made directly to a qualified educational institution, or (ii) any medical payments made directly to a healthcare provider on someone else’s behalf.

The second exception is the qualified tuition or 529 plan account.  While these do not qualify for the unlimited tuition gift tax exclusion, Congress has provided a special rule that allows for front-end loading of contributions. You can elect to treat a gift made in Year One as being spread equally over the ensuing five years.  If you transfer $70,000 to a 529 plan account in 2016 you can elect to treat the contribution as five years’ worth of $14,000 annual exclusion gifts for the beneficiary of that 529 plan account. This will require the filing of a gift tax return to make the election but there is no gift tax due.  You can also double the 529 plan account contribution to $140,000 if you and your spouse agree to split the gift and make the election to spread it over 5 years.

Lifetime Exemption

The Internal Revenue Code also provides for a gift and estate tax exemption amount which in 2016 is $5.45 million.  This exemption works in tandem so that the first $5.45 million of cumulative lifetime gifts (which does not include annual exclusion gifts) or the value of assets at death is exempt from gift and/or estate taxation.  The gift tax exemption amount used during lifetime is subtracted from the estate tax exemption amount available upon death.  Even though this exemption amount may continue to be available at death, you may want to consider using some or all of the exemption amount during your lifetime to remove future appreciation from your estate. And like the annual exclusion amount, each spouse has their own lifetime exemption.

Annual exclusion and lifetime exemption gifts can be made outright or they can be made to a trust for the benefit of family members.  There are several types of trusts that can be used to pass on wealth, all irrevocable and all a variation of what may be referred to as a gifting trust.

Neil L. Cohen is an attorney with Seegel Lipshutz & Lo, LLP located in the Wellesley Office Park, 80 William Street, Suite 200, Wellesley, MA 02481.  You can reach them at: (781) 431-7700, or email Neil Cohan at:  You can learn more about Neil’s firm at:

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