What size does she wear? What color does he like? Does she already have one of these? If you find yourself asking these questions when shopping for those special people in your life, here’s an idea: Forget the retail stores; instead, provide a future of limitless possibilities by giving an investment as a gift.
With time, even a small investment can grow to provide a down payment for a car or home, a special vacation or an attractive nest egg. For those younger people on your shopping list, gifting into a 529 college savings plan offering potentially tax-free growth can help an aspiring teacher, doctor or veterinarian realize his or her dream.
When you gift an investment, the recipient may not be the only one who benefits. You, as the donor, may benefit from reducing your estate and income tax on assets gifted.
When you gift investments, your estate is directly reduced by the total amount gifted. So, if you give $3,000 each to three recipients, your estate is reduced by $9,000.
You can gift up to $11,000 in 2005 per individual recipient and avoid filing a gift return or incurring a gift-tax liability. If you have children or grandchildren whom you’d like to help with a house, car, college fund, etc., gifting can be a terrific way to lend a helping hand. For the investment to be considered a gift, you must give up control of the investment. This means the recipients can do as they wish with the gifted dollars. Payments made directly to an educational institution providing education for the recipient or payments made directly to a medical institution providing medical care for the recipient are not considered gifts when figuring the annual exclusion amount.
The 529 college savings plans offer a very unique gifting opportunity
in that you can still maintain ownership
and control of the account after you have gifted.
So, if at some future time you want to change the beneficiary of the account or even take the money out for your own use, you have the ability to do so (taxes and penalties may apply).
Giving an investment as a gift does not generate a deduction for the giver (unless it is a charitable donation to a qualified charity) or income for the recipient. No gains or losses are realized when gifting. These occur only when the investment is sold.
There are many ways to give an investment as a gift. A qualified tax professional or financial advisor can help you develop a gifting strategy and provide all the necessary details. It’s important to consult a professional before gifting an investment because the laws concerning trust and custodial accounts can be complicated, and charitable giving and gifts to minors may have different tax implications. In addition, some states have a 36-month “look back” rule that cancels any gifts made while trying to qualify for Medicaid.
Once you’ve learned all the facts, you’ll realize the full benefits of giving investments, both for you and the person receiving the gift. So, the next time you’re searching for a special gift for those special people in your life, consider a gift that will keep giving for years to come - the gift of an investment. b