The federal government estimates that Medicare and social security will run out of money even sooner than previously predicted. According to these latest estimates, Medicare will be depleted in 2017, and the social security trust fund will run out in 2037.
As baby boomers retire and sign up for social security and Medicare, these programs will be paying benefits to millions more. It's estimated that the number receiving social security benefits will increase by one to two million a year from 2009 through 2032. In the 1990's, by comparison, about half a million beneficiaries were added each year. Starting in 2011, more than one million people will be added to Medicare each year.
Consider direct education gifts - There's no limit and no taxes
There are many ways to pay for a child's education, but one of the methods that you might not be aware of is that of direct education gifts.
In 2009 a person is allowed to give up to $13,000 to another individual without running afoul of the gift tax exclusion. However, if a payment is made directly to a qualifying education institution, the $13,000 per person annual gift limitation does not apply. Not only are the gift tax limitations removed, making substantial education payments in this manner could also reduce the taxable estate of the person making the gift, thereby reducing exposure to estate taxes.
In this case, a "child" doesn't have to be your offspring. It can be a niece, nephew, grandchild, or anybody else of any age, either related or unrelated. And the term "education" isn't limited to only college tuition. The rules also apply to private education institutions where tuition is a requirement for entry, such as elementary and high schools.
However, only tuition is allowed to be paid under these rules. Books, room, board, supplies, and entertainment aren't eligible for this exclusion.
It's even possible to make payments for multiple school years at one time, so you're not limited to making annual gifts for each school year. A potential pitfall to this multiple-year strategy is that once the funds are given to the institution, they can't be refunded. If the student decides not to attend that institution, your tax-saving plan will have backfired.
While this gift and estate tax savings strategy might seem simple, contact us for assistance to ensure the desired outcome.
As baby boomers retire and sign up for social security and Medicare, these programs will be paying benefits to millions more. It's estimated that the number receiving social security benefits will increase by one to two million a year from 2009 through 2032. In the 1990's, by comparison, about half a million beneficiaries were added each year. Starting in 2011, more than one million people will be added to Medicare each year.
Consider direct education gifts - There's no limit and no taxes
There are many ways to pay for a child's education, but one of the methods that you might not be aware of is that of direct education gifts.
In 2009 a person is allowed to give up to $13,000 to another individual without running afoul of the gift tax exclusion. However, if a payment is made directly to a qualifying education institution, the $13,000 per person annual gift limitation does not apply. Not only are the gift tax limitations removed, making substantial education payments in this manner could also reduce the taxable estate of the person making the gift, thereby reducing exposure to estate taxes.
In this case, a "child" doesn't have to be your offspring. It can be a niece, nephew, grandchild, or anybody else of any age, either related or unrelated. And the term "education" isn't limited to only college tuition. The rules also apply to private education institutions where tuition is a requirement for entry, such as elementary and high schools.
However, only tuition is allowed to be paid under these rules. Books, room, board, supplies, and entertainment aren't eligible for this exclusion.
It's even possible to make payments for multiple school years at one time, so you're not limited to making annual gifts for each school year. A potential pitfall to this multiple-year strategy is that once the funds are given to the institution, they can't be refunded. If the student decides not to attend that institution, your tax-saving plan will have backfired.
While this gift and estate tax savings strategy might seem simple, contact us for assistance to ensure the desired outcome.
D.E. Rodrigues & Company Fall River #: 508-679-6079 New Bedford #: 508-999-0020
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