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For many years, individuals have been allowed to gift another person $10,000 without incurring any consequences (tax or filing requirements). As a result of inflation adjustments through the year, the annual amount in 2007 is $12,000. If a married couple elects to gift split, they can give an individual $24,000. Let's follow that up with some more detailed aspects of a gift.


First off, what is a gift? A gift occurs when a beneficial interest in property is transferred for less than full and adequate consideration in money or money's worth. So a gift can occur by a direct transfer of cash or other tangible or intangible property. Gifting also occurs through creating a trust, forgiving a debt or assigning the benefits of life insurance policies.


Next to consider is whether a completed gift has occurred. A gift tax is not necessarily imposed on the receipt of property, but whether the donor has parted with "dominion and control" over the property. This occurs when the donor no longer has the ability to control decisions over the transferred property.


The following are a few items that are sometimes overlooked regarding gifting:


A) A check is not considered a completed gift until the donee cashes the check. So if you customarily write check at the end of the year, give the recipient enough time to take it to the bank by December 31:


B) "Small" gifts such as birthday and holiday gifts are to be included in the $12,000 per year exclusion:


C) A special provision allows you to make checks payable directly to educational institutions or medical care providers and those amounts will not be allocated to the $12,000 exclusion:


D) If a married couple intends to give $24,000, they can write two separate checks for $12,000 endorsed by each person and avoid the return filing requirement:


E) There is a special provision that allows one contribution of up to $60,000 to a Section 529 (educational) plan to be reported over a five-year period to meet the $12,000 per year exclusion.


Contact your Rea advisor for more guidance on this issue.


- By Wendy V. Shick, CPA, CFP (Principal, Mentor office)


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