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San Clemente Journal

Giving Financial Gifts? Know the Rules

Nov 30, 2006 10:05PM ● By Don Kindred
by Ken Stelts, Investment Representative

The holidays are approaching rapidly, so shopping may be on your mind. Of course, you can find many different types of thoughtful presents that will “make the day” of your loved ones. But why not give a gift that can brighten their entire future? Specifically, why not give a financial gift that has long-term benefits?
Before you give shares of stock or other financial assets, however, you might want to brush up on some of the rules governing financial gift giving. 
Understanding Gift Taxes
When you give someone a “typical” holiday present - clothing, electronics, books, gift certificates, etc. - you don’t have to worry about any taxes, except sales tax. But if you want to give away stock or other securities, you will have to consider gift tax rules, which are basically designed to prevent people from removing most of the assets from their taxable estates through large gifts. 
However, gift tax rules are, for most people, quite generous. Consider the following:
• You can give up to $12,000 to an individual in a tax year without facing any tax consequences. In fact, you can make $12,000 gifts to as many different people as you’d like in a tax year without incurring gift taxes. 
• You can give your spouse a gift of any amount without facing gift taxes. 
* You and your spouse can each give the same individual $12,000, for a total of $24,000, gift-tax free.

Giving Stocks? Do Your Homework 
If you decide to give stocks or other securities, you have to keep a few things in mind. Make sure you know what you originally paid for the stock (its tax basis), how long you’ve held it and its fair market value at the date of the gift. The recipients will need this information to determine gains or losses if they decide to sell the stock you’ve given them.
Both you and your loved ones can gain valuable tax advantages from your gift of stock. When you gave your shares of stock, you also gave away your holding period - the amount of time you’ve held the stock. So, even if the recipients own the stock only a day or so before selling it, they may pay the long-term capital gains tax rate, which is probably considerably lower than their current income tax rate. And by giving shares of stock, you also will benefit - because you’ll avoid the capital gains taxes you would have paid if you had sold the stock yourself. Before taking any action, though, consult with your tax adviser.
Gifts for IRAs
You don’t have to actually give stocks to help your intended recipients make progress toward their financial goals. As an alternative, consider giving your loved ones money to add more shares of stock (or bonds or other investments) in an IRA, if they qualify to make an IRA contribution. For 2006, contribution limits are $4,000 into a Roth or traditional IRA (or $5,000 if they are 50 or older). If your intended recipients have fully funded their IRAs for 2006, they can apply your gift for 2007, for which the contribution limit is the same.
Education Savings
Education costs continue to rise at a rapid rate, often putting a strain on finances. If you have a loved one saving for their own or their child’s education, consider a gift for their education fund. There are a number of account and investment options available for education savings. One of the most popular for post-secondary education is the 529 college savings plan. The growth of investments in this type of plan may be tax-free if certain requirements are met, and you can maintain control of the funds if you so desire. 
Long-lasting Gifts
The holidays are here for only a short while - but your financial gifts to your loved ones can make a difference in their lives for many years to come.