“Gifting”: a fairly simple concept. Any child can tell you that they are a big fan of gifts! But when you are speaking of gifting from a financial planning standpoint, things may start to seem confusing – with issues of control, tax consequences, estate benefits. Does it all seem so overwhelming that you want to go back to the days when “gifting” meant wrapping up a tie or a toy?

Don’t despair. Your financial advisor can give you some simple, common-sense advice and you may find that gifting, reasonably, provides huge benefits (taxwise and otherwise) for both you and for your heirs – or for anyone who you choose to designate as your gift recipient.

Quite simply, gifting means transferring assets from your own investment portfolio to your children or other beneficiaries of your choosing during your lifetime. The benefit is that your taxable estate is reduced – you are paying less taxes in the present, and your heirs will have less taxes to pay on anything passed along, after you pass.

Gifting also allows you to provide income for yourself or for your heirs, if arranged properly. You can also provide for a child’s education – your own child, a grandchild, or anyone – again, with very beneficial tax consequences.

By current tax law, you can gift up to $12,000 (per person, per year) – tax free – called an annual exclusion. You need not file a separate tax return for this amount.

Even beyond that amount, if you are directly paying expenses to a school – for tuition, for example, paid directly to the institution (not paid to the student and then used for school expenses) that amount paid – sometimes quite a hefty amount! – does not count towards that “annual exclusion”. You can pay the tuition and then also gift that child up to $12,000 without tax consequences for you or for the recipient. The same goes for paying medical expenses directly to a provider – something to consider if you are part of the “sandwich generation”, taking care of children and aging parents.

Another option for gifting is to do so through Missouri’s 529 plan, which allows for an “accelerated” gifting strategy of combining 5 years of donations in one year. 529 plans can be used to pay for qualified education expenses at almost any college or secondary school – but have the advantage of having you, as the giver, retain control over the money until it is used – when used, gains are taxed at the student’s rate, typically much lower than your own.

All in all gifting is an important component of a wealth transfer plan, but there are many other pieces to consider. You should ask your financial advisor for his or her advice and plan ahead for your own benefit, as well as your heirs.