Hudson Valley
Estate Planning
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Grandparents Beware: Your Generosity Has Tax Consequences
Did you know that contributing to a grandchild’s education, housing, or car may subject you to significant taxation? Read below to learn about the relevant taxes: the gift tax, the generation skipping transfer tax, and the kiddie tax.
Gift Tax
The federal gift tax applies to gifts–defined as any “transfer of property by one individual to another while receiving nothing, or less than full value, in return”–valued at more than $18,000. A tax of 18-40% applies to each dollar of value over $18,000.
Generation Skipping Transfer Tax
A 40% federal tax—called the generation skipping transfer tax–generally applies to transfers benefiting a person more than one generation below the transferor’s generation.
Kiddie Tax
A so-called federal “kiddie tax” applies to most investment income–including income from transferred stocks and bonds–for children under 18 and full-time students younger than 24. In fact, such income above $2,500 is taxed at the child’s parents’ marginal tax rate.
Exemptions
Fortunately, several key exemptions to these taxes exist and can be exploited through proper estate planning. Book your free consultation today to learn more.
