When you mention “gifting” what usually comes to mind is a birthday or Christmas. What I’d like to talk about today is gifting assets to another generation. Your federal estate tax exemption, which is the amount you can give away tax free when you die, for this year is $5.34 million and next year will be $5.43 million and if you have more assets than that your estate will owe federal estate taxes. Married couples have an unlimited gifting privilege between spouses in life or death.

In certain states, the estate exemption is just $1 million, not the $5 million (indexed for inflation) as at the federal level. CBS Boston‘s recent posting, titled “All About Gifting Assets,” warns that things can get complicated pretty fast and you should have a good estate planning attorney to help you.

The annual gift exclusion for anyone is $14,000. That means you can transfer this amount this year (and then next) to as many recipients as you want, provided you have the money to make the gifts. If married and your spouse joins in, then you can gift a total of $28,000. What’s more, you can pay medical or school bills for an individual and not incur a gift tax. In other words, such “gifts” are not counted toward that gift exemption amount.

Taking advantage of these opportunities is a great idea, so why not give away some money to help the next generation accomplish their goals (or to pare down your estate so you won’t owe estate taxes). For instance, if you have an estate worth $1.2 million, there will be no federal estate taxes but (depending on where you live) some state estate taxes. Would you rather give it away to your family or to the government?

If any of your grandchildren are in college or grad school you can pay their tuition and medical insurance, but you need to pay it directly to the school or insurance company. And after paying the bills (if you still have some money left), you can still hand over a check to them for $14,000, or with your spouse, you can make it $28,000.

Reference: CBS Boston (November 27, 2014) “All About Gifting Assets”