Gifting to Children

[Rajsx]

[Topic is now in Personal Finance (Not Investing) - mod mkc]

We are 68 & 63, have won the game so to speak, presently have savings of around 45-50 times of our annual expenses.

We are looking to gift money to our children who are 40 & 32, we do give $36000 to each a year & may have to fill Form 709 if we give any more in a year.

I understand presently the lifetime gifting limit is $13 m each, which may soon come down to $ 5 to 7 m each.

Our state does not have any Estate Tax apart from what ever the Federal Estate Tax, which I hear is to a tune of 40%

Question - Is the Life time Gifting Limit to a person the same as the estate limit beyond which the Tax is applied ??
OR
the estate (inheritance) tax after we pass away is different ??
The Estate Tax will be paid by our children.

Question - The present Step Up in basis on our Brokerage Taxable account may be taken off & children may end up paying the Capital Gains Tax after we pass away

Thanks for helping my understanding of these issues

[Mr. Potter]

How much have you “Won the game” by? If you’re in the 10’s of millions I would hire a very smart cpa or tax lawyer. They could easily cover their fees in savings to you and your kids. I don’t know what super wealthy families do, set up a foundation or something and funnel the money into that and make your kids the board of directors.. just joking, but maybe something along those lines

[toddthebod]

We are 68 & 63, have won the game so to speak, presently have savings of around 45-50 times of our annual expenses.

We are looking to gift money to our children who are 40 & 32, we do give $36000 to each a year & may have to fill Form 709 if we give any more in a year.

I understand presently the lifetime gifting limit is $13 m each, which may soon come down to $ 5 to 7 m each.

Our state does not have any Estate Tax apart from what ever the Federal Estate Tax, which I hear is to a tune of 40%

Question - Is the Life time Gifting Limit to a person the same as the estate limit beyond which the Tax is applied ??
OR
the estate (inheritance) tax after we pass away is different ??
The Estate Tax will be paid by our children.

Question - The present Step Up in basis on our Brokerage Taxable account may be taken off & children may end up paying the Capital Gains Tax after we pass away

Thanks for helping my understanding of these issues

There is a unified credit that applies to gifts and bequests combined.

There is currently a step up in basis on assets in your estate when you pass away, and speculation on future law changes is forbidden on this forum.

[delamer]

“The lifetime gift tax exemption ties directly to the federal estate tax.”*

Any estate tax is technically paid by the estate, not the heirs. But it reduces the assets that the heirs receive from the estate.

It’s against forum policy to speculate on future legislation. Right now, assets in taxable accounts receive a step-up (assuming that they were not held in certain types of trusts). It is not knowable if or when that will change.

*Source: https://smartasset.com/retirement/lifet ... -exemption

[Garco]

We recently gave a substantial cash gift to one of our children to support the purchase of a home. We paid "capital gains taxes" to the feds, state, and city, because the source was income that we had earned on investments in the stock market. The source of the cash was our holdings in a brokerage account. We also have investments in retirement accounts but those were not tapped for this purpose. These were not "gift taxes."

[UNCHEEL]

There may be some additional opportunities for gifting. Just as you and your spouse are each giving to your children, you can also give a like amount to their spouse - assuming they're married and you are comfortable with their marital situation. Also, you can give money to grandchildren and/or towards their college accounts. Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

[toddthebod]

towards their college accounts. Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

A waste. You should write tuition checks directly. Doesn't count against your lifetime exemption.

[Scubadude]

How much have you “Won the game” by? If you’re in the 10’s of millions I would hire a very smart cpa or tax lawyer. They could easily cover their fees in savings to you and your kids. I don’t know what super wealthy families do, set up a foundation or something and funnel the money into that and make your kids the board of directors.. just joking, but maybe something along those lines

100% correct- world is very different place in the Multi-millions. Typically this would entail a team of targeted professionals.

[lazynovice]

towards their college accounts. Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

A waste. You should write tuition checks directly. Doesn't count against your lifetime exemption.

529 can be used for room and board, tuition and computers which do count against the exemption, so you still have some room there. You also have to be alive when the grandchild attends college to take advantage of the direct method, which depending upon the age spread and health of the grandparent may be unlikely. A waste for some but not all.

[toddthebod]

towards their college accounts. Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

A waste. You should write tuition checks directly. Doesn't count against your lifetime exemption.

529 can be used for room and board, tuition and computers which do count against the exemption, so you still have some room there. You also have to be alive when the grandchild attends college to take advantage of the direct method, which depending upon the age spread and health of the grandparent may be unlikely. A waste for some but not all.

The parents pay the room & board and other expenses to reduce their estates. Does not count against their annual exclusion. Nah, 529s are a waste of time. Better would be to set up a Crummey grantor trust and contribute $36,000/year for 18 years, plus pay the trust taxes. You can pay the tuition plus room & board when due and still have room under the annual exclusion.

[smitcat]

We are 68 & 63, have won the game so to speak, presently have savings of around 45-50 times of our annual expenses.

We are looking to gift money to our children who are 40 & 32, we do give $36000 to each a year & may have to fill Form 709 if we give any more in a year.

I understand presently the lifetime gifting limit is $13 m each, which may soon come down to $ 5 to 7 m each.

Our state does not have any Estate Tax apart from what ever the Federal Estate Tax, which I hear is to a tune of 40%

Question - Is the Life time Gifting Limit to a person the same as the estate limit beyond which the Tax is applied ??
OR
the estate (inheritance) tax after we pass away is different ??
The Estate Tax will be paid by our children.

Question - The present Step Up in basis on our Brokerage Taxable account may be taken off & children may end up paying the Capital Gains Tax after we pass away

Thanks for helping my understanding of these issues

The yearly gifting limits (36K currently) does not affect the current estate tax numbers , they are in addition to those numbers.

[JackoC]

towards their college accounts. Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

A waste. You should write tuition checks directly. Doesn't count against your lifetime exemption.

529 can be used for room and board, tuition and computers which do count against the exemption, so you still have some room there. You also have to be alive when the grandchild attends college to take advantage of the direct method, which depending upon the age spread and health of the grandparent may be unlikely. A waste for some but not all.

The parents pay the room & board and other expenses to reduce their estates. Does not count against their annual exclusion. Nah, 529s are a waste of time. Better would be to set up a Crummey grantor trust and contribute $36,000/year for 18 years, plus pay the trust taxes. You can pay the tuition plus room & board when due and still have room under the annual exclusion.

Tuition paid direct to school does not count against annual gift tax exemption but room and board, supplies etc do. That's different than 529 withdrawals where basically any bona fide education related expense is a qualified expense.

That's not a big factor overall in 529's v other types of gifts, but I don't agree 529's are categorically inferior especially in case of grandchildren which is what the original 529 comment on this thread was about. We set up trusts for our kids when small, seeded by an inheritance from my mom I 'renounced', but eventually most contributions via annual 'Crummey powers' gifts to the trusts at the gift tax exemption level. Worth it but doing it most economically was non-negligible work and hassle. A pro set it up, but I DIY'd everything else, got relative to be free trustee w/ handholding, Crummey letters, state/fed 1041 returns. That saved multi-$10k's cumulatively, but was work. Also the tax difference isn't personal taxable v tax exempt but 1041 tax rates reach top bracket at quite low trust income. Depends if amount and situation is such that the money is really likely to all be used for education (plus the new $35k total 529>Roth conversion option). Those trusts were bigger than college cost and weren't used for education*. They were distributed with kids in their 30's partly to reduce my workload, though also by then it was a trivial discussion with totally mature people agreeing the money should be viewed as their retirement fund.

For our grandkids we've gone 529. It's smaller scale starting at zero and only planning to put in enough to likely mainly fund college (529 plans usually have total contribution limits of only several $100k per beneficiary anyway). And obviously we're much older relative to our gc's than our kids so 'just pay the tuition directly' is more of an assumption about longevity and mental competence. And it's less likely we'll know our gc's as fully mature adults as opposed to college kids. My personal tolerance for hassle has also declined. 529 was log onto Vang, set up, send $ annually.

*back to first point we also had 529's for them which we used to pay education expenses not exempt from gift tax besides some tuition, we paid most tuition directly. By accident the new $35k Roth conversion option per beneficiary is almost enough to empty those accounts.

[toddthebod]

Tuition paid direct to school does not count against annual gift tax exemption but room and board, supplies etc do. That's different than 529 withdrawals where basically any bona fide education related expense is a qualified expense.

Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

Furthermore, how much is room & board anyway? I suggest that a single year of contributions up to the annual exclusion when the child is born will more than cover it, probably with some left over.

Even still, the tax savings on the 529 would be pretty minimal.

Contribute $36,000 when your grandchild is born this year.
It grows conservatively at 6% nominal/year for 18 years, giving the child $100,000 to spend on room & board tax free.

Vs.

Contribute $36,000 to a grantor trust. Same growth to $100,000. Grandparents pay the $15,000 in capital gains taxes, 40% of which would be lost to estate taxes otherwise, resulting in savings of about $9,000 net. Not super exciting.

[JackoC]

Tuition paid direct to school does not count against annual gift tax exemption but room and board, supplies etc do. That's different than 529 withdrawals where basically any bona fide education related expense is a qualified expense.

1. Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

Furthermore, how much is room & board anyway? I suggest that a single year of contributions up to the annual exclusion when the child is born will more than cover it, probably with some left over.

Even still, the tax savings on the 529 would be pretty minimal.

Contribute $36,000 when your grandchild is born this year.
It grows conservatively at 6% nominal/year for 18 years, giving the child $100,000 to spend on room & board tax free.

Vs.

Contribute $36,000 to a grantor trust. Same growth to $100,000. Grandparents pay the $15,000 in capital gains taxes, 40% of which would be lost to estate taxes otherwise, resulting in savings of about $9,000 net. Not super exciting.

1. Not sure whether you're revising your earlier point there, but to be clear to others, it's spelled out in Instructions for Form 709 Gift Tax Returns: "Payments that qualify for the educational exclusion' aren't subject to gift tax", ie don't use up annual exemption. But "No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs."
https://www.irs.gov/instructions/i709
As I said not a huge point in the big picture but what you said originally, at least, was incorrect. Direct tuition payment doesn't use up GT exemption, room and board payments do.

2. The grandparents still pay 60% of $15k v nothing assuming those numbers, if they're subject to estate tax which OP never said that I noticed, 'winning the game' wouldn't necessarily imply it. And you must also consider whether taxes paid for the trust are themselves taxable gifts to the trust beneficiaries. You seem to assume the taxes paid by grandparents are a 'free' addition to the annual exclusion. AFAIK this is not spelled out in black and white anywhere but on advice of our tax guy I counted taxes we paid for our kids' trusts as gifts to them. IOW our annual contributions to each trust was the couple's gift tax exemption minus the taxes we'd paid on the trust's behalf that calendar year. To reiterate this isn't theoretical for me, I've done both trusts and 529's. Underlining that sometimes one or the other is more advantageous. But tax is a still a drawback of trusts, also remembering you reach top federal bracket at only $15.2k taxable income per trust. And a pro trustee is a significant cost if no trusted person willing to do it for free, likewise tax returns and documentation are DIY work or extra cost.

I still believe Crummey trust (though plus 529's actually) was the way to go with the larger amount for our kids with more years to add since I was much younger than OP when we started, also more tolerant of hassles (than I am now, don't know about OP) and highly statistically likely to be around to pay their college tuition directly. I believe 529 is the way to go with our grandkids (for the exemption amount anyway): we'll probably only do ~10 yrs of gift tax exemption per gc, a pretty small amount to justify trust hassles IME, and not likely to far exceed college cost ('what if they don't want to go to college?' frankly I don't care that much, polite lip service aside there's big hurdle to get over in our society to be taken seriously as a non-college grad IME, I want them to be taken seriously, and they're our $'s ). And it's much more uncertain we'll be around to pay grandkids' college tuition directly. OP's situation as w/ grandkids if any seems closer to ours w/ grandkids, different than our situation with our kids when they were little and we started those trusts. But it really does depend.

[toddthebod]

Tuition paid direct to school does not count against annual gift tax exemption but room and board, supplies etc do. That's different than 529 withdrawals where basically any bona fide education related expense is a qualified expense.

1. Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

Furthermore, how much is room & board anyway? I suggest that a single year of contributions up to the annual exclusion when the child is born will more than cover it, probably with some left over.

Even still, the tax savings on the 529 would be pretty minimal.

Contribute $36,000 when your grandchild is born this year.
It grows conservatively at 6% nominal/year for 18 years, giving the child $100,000 to spend on room & board tax free.

Vs.

Contribute $36,000 to a grantor trust. Same growth to $100,000. Grandparents pay the $15,000 in capital gains taxes, 40% of which would be lost to estate taxes otherwise, resulting in savings of about $9,000 net. Not super exciting.

1. Not sure whether you're revising your earlier point there, but to be clear to others, it's spelled out in Instructions for Form 709 Gift Tax Returns: "Payments that qualify for the educational exclusion' aren't subject to gift tax", ie don't use up annual exemption. But "No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs."
https://www.irs.gov/instructions/i709
As I said not a huge point in the big picture but what you said originally, at least, was incorrect. Direct tuition payment doesn't use up GT exemption, room and board payments do.

2. The grandparents still pay 60% of $15k v nothing assuming those numbers, if they're subject to estate tax which OP never said that I noticed, 'winning the game' wouldn't necessarily imply it. And you must also consider whether taxes paid for the trust are themselves taxable gifts to the trust beneficiaries. You seem to assume the taxes paid by grandparents are a 'free' addition to the annual exclusion. AFAIK this is not spelled out in black and white anywhere but on advice of our tax guy I counted taxes we paid for our kids' trusts as gifts to them. IOW our annual contributions to each trust was the couple's gift tax exemption minus the taxes we'd paid on the trust's behalf that calendar year. To reiterate this isn't theoretical for me, I've done both trusts and 529's. Underlining that sometimes one or the other is more advantageous. But tax is a still a drawback of trusts, also remembering you reach top federal bracket at only $15.2k taxable income per trust. And a pro trustee is a significant cost if no trusted person willing to do it for free, likewise tax returns and documentation are DIY work or extra cost.

I still believe Crummey trust (though plus 529's actually) was the way to go with the larger amount for our kids with more years to add since I was much younger than OP when we started, also more tolerant of hassles (than I am now, don't know about OP) and highly statistically likely to be around to pay their college tuition directly. I believe 529 is the way to go with our grandkids (for the exemption amount anyway): we'll probably only do ~10 yrs of gift tax exemption per gc, a pretty small amount to justify trust hassles IME, and not likely to far exceed college cost ('what if they don't want to go to college?' frankly I don't care that much, polite lip service aside there's big hurdle to get over in our society to be taken seriously as a non-college grad IME, I want them to be taken seriously, and they're our $'s ). And it's much more uncertain we'll be around to pay grandkids' college tuition directly. OP's situation as w/ grandkids if any seems closer to ours w/ grandkids, different than our situation with our kids when they were little and we started those trusts. But it really does depend.

1. Parents can pay for room and board for their college-attending children without concern for gift rules.

2. A properly set up grantor trust can move the assets out of the estate while still having the trust income taxable to the grantor.

3. If grandparents are not subject to estate taxes, this entire discussion is pointless. They can gift whatever they want.

[PassivePanda]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

[toddthebod]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

No step up if you gift before you die.

[PassivePanda]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

No step up if you gift before you die.

I didn't know that. Thank you. I thought carryover basis also got the step-up, but it seems I was wrong. That's why this forum is great! Guess that means the best option for the kids is to sell immediately if they are in the 0% capital gains bracket, or to hold onto it if they're not.

[toddthebod]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

No step up if you gift before you die.

I didn't know that. Thank you. I thought carryover basis also got the step-up, but it seems I was wrong. That's why this forum is great! Guess that means the best option for the kids is to sell immediately if they are in the 0% capital gains bracket, or to hold onto it if they're not.

Then you have to worry about kiddie tax!

[smitcat]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

If you are looking at Fed estate taxes please also research your states estate taxes - some of them are quite significant while others have zero.

[delamer]

I am wondering about many of the same things. I don't know how you are gifting, but my understanding, and I could be wrong, is that it makes more sense to gift appreciated securities from a taxable account rather than simply writing a check. Two benefits: 1) If your kids are in a low tax bracket, unlike you, they could sell without incurring any capital gains. If not, they could just hold on to it and take the step-up basis when you pass away, assuming step-up doesn't get canceled. 2) If you have "won the game" then perhaps you want a more conservative asset allocation, and this helps you get there more quickly without selling anything and taking a tax hit.

Concerning the reduction in the estate tax exemption, I've read a couple articles that argued for either "go big or don't bother" approach when it comes to gifting. https://www.pnc.com/insights/wealth-man ... osing.html

No step up if you gift before you die.

I didn't know that. Thank you. I thought carryover basis also got the step-up, but it seems I was wrong. That's why this forum is great! Guess that means the best option for the kids is to sell immediately if they are in the 0% capital gains bracket, or to hold onto it if they're not.

Why would it necessarily be better to hold onto the gift just because they aren’t in the 0% bracket? Unless the adult child has solid expectations that they’ll be in a lower tax bracket in the near future, if the child wants to use the money for expenses now or has an alternative investment that is better for them in the long run then a 15% tax rate is actually pretty good.

My children have been in both of those positions. Not everyone should hold onto a gift until they die just to give their heirs a step-up in that specific investment.

[dukeblue219]

Even this those accounts are fully funded, new provisions allow the excess to flow back to the child in a Roth. It's a great, tax-free opportunity to start a nest egg for them.

It's not quite that simple. The excess that can be Roth'd is capped at $35k total, has to be in the 529 for 15 years, the beneficiary still needs earned income, and it counts for the annual contribution, not like a bonus rollover arrangement.

It's something, but as always there's a catch.

[stan1]

Optimization is well and good, but OP did not indicate whether their kids need financial assistance now (spending some or all of the money or using this money to invest and spending income) or if this is all wealth transfer. Maybe the kids are not similarly situated.

Agree if they are anywhere close to $10M or above they should be talking to experts in tax and estate planning who are looking at their full situation not general rules of thumb off the internet.

[JackoC]

Tuition paid direct to school does not count against annual gift tax exemption but room and board, supplies etc do. That's different than 529 withdrawals where basically any bona fide education related expense is a qualified expense.

1. Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

Furthermore, how much is room & board anyway? I suggest that a single year of contributions up to the annual exclusion when the child is born will more than cover it, probably with some left over.

Even still, the tax savings on the 529 would be pretty minimal.

Contribute $36,000 when your grandchild is born this year.
It grows conservatively at 6% nominal/year for 18 years, giving the child $100,000 to spend on room & board tax free.

Vs.

Contribute $36,000 to a grantor trust. Same growth to $100,000. Grandparents pay the $15,000 in capital gains taxes, 40% of which would be lost to estate taxes otherwise, resulting in savings of about $9,000 net. Not super exciting.

1. Not sure whether you're revising your earlier point there, but to be clear to others, it's spelled out in Instructions for Form 709 Gift Tax Returns: "Payments that qualify for the educational exclusion' aren't subject to gift tax", ie don't use up annual exemption. But "No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs."
https://www.irs.gov/instructions/i709
As I said not a huge point in the big picture but what you said originally, at least, was incorrect. Direct tuition payment doesn't use up GT exemption, room and board payments do.

2. The grandparents still pay 60% of $15k v nothing assuming those numbers, if they're subject to estate tax which OP never said that I noticed, 'winning the game' wouldn't necessarily imply it. And you must also consider whether taxes paid for the trust are themselves taxable gifts to the trust beneficiaries. You seem to assume the taxes paid by grandparents are a 'free' addition to the annual exclusion. AFAIK this is not spelled out in black and white anywhere but on advice of our tax guy I counted taxes we paid for our kids' trusts as gifts to them. IOW our annual contributions to each trust was the couple's gift tax exemption minus the taxes we'd paid on the trust's behalf that calendar year. To reiterate this isn't theoretical for me, I've done both trusts and 529's. Underlining that sometimes one or the other is more advantageous. But tax is a still a drawback of trusts, also remembering you reach top federal bracket at only $15.2k taxable income per trust. And a pro trustee is a significant cost if no trusted person willing to do it for free, likewise tax returns and documentation are DIY work or extra cost.

I still believe Crummey trust (though plus 529's actually) was the way to go with the larger amount for our kids with more years to add since I was much younger than OP when we started, also more tolerant of hassles (than I am now, don't know about OP) and highly statistically likely to be around to pay their college tuition directly. I believe 529 is the way to go with our grandkids (for the exemption amount anyway): we'll probably only do ~10 yrs of gift tax exemption per gc, a pretty small amount to justify trust hassles IME, and not likely to far exceed college cost ('what if they don't want to go to college?' frankly I don't care that much, polite lip service aside there's big hurdle to get over in our society to be taken seriously as a non-college grad IME, I want them to be taken seriously, and they're our $'s ). And it's much more uncertain we'll be around to pay grandkids' college tuition directly. OP's situation as w/ grandkids if any seems closer to ours w/ grandkids, different than our situation with our kids when they were little and we started those trusts. But it really does depend.

1. Parents can pay for room and board for their college-attending children without concern for gift rules.

2. A properly set up grantor trust can move the assets out of the estate while still having the trust income taxable to the grantor.

3. If grandparents are not subject to estate taxes, this entire discussion is pointless. They can gift whatever they want.

1. I specifically said grandchildren, answering a post which also specifically said grandchildren, and OP's kids are far past college age. But I'm interested what source says room and board by parents doesn't count as gift.
2. Yes though our kids' trusts weren't grantor for other reasons. And on the paperwork side I still need to file dummy 1041's summarizing income fed/letter saying it's grantor state, for our separate grantor trust. At 529 size, maybe multiple, that hassle would be more serious, to me.
3. But that's assuming two different things are binary which aren't.

a. There are far more people with a fair chance of eventually being subject to estate tax (future income, returns and tax law) than those almost surely subject to it. That's inherent to the shape of the NW distribution tail: each doubling of NW is <<1/2 as many people. The much larger group can't count xfers from estate as saving 40% same as 'in hand' tax exemption like 529, but it's still not pointless for them to consider estate tax.

b. Since 529's are so easy they only exclude trusts where annual gift tax exclusion is a lot of money. The same people for whom a full 40% savings per $ moved from estate is much less certain, and for whom cost/hassle of trusts v benefit is relatively less favorable. OTOH people who actually need trusts (you can't move $mils from an estate with a 529) can also do 529 w/ almost no additional effort, for greater tax efficiency on amounts suitable for education.

[toddthebod]

1. I specifically said grandchildren, answering a post which also specifically said grandchildren, and OP's kids are far past college age. But I'm interested what source says room and board by parents doesn't count as gift.

You told me I was wrong. You keep trying to correct me. I have never said the grandparents can pay the room & board without it counting against the annual exclusion. I have been consistent and specific:

The parents pay the room & board and other expenses to reduce their estates. Does not count against their annual exclusion.

Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

1. Parents can pay for room and board for their college-attending children without concern for gift rules.

I shouldn't need to provide a citation that providing support for your dependent is not subject to gift tax. It's obvious.

[PassivePanda]

Then you have to worry about kiddie tax!

Don't believe that applies to adult children right? If no dependents and under age 24.

Why would it necessarily be better to hold onto the gift just because they aren’t in the 0% bracket? Unless the adult child has solid expectations that they’ll be in a lower tax bracket in the near future, if the child wants to use the money for expenses now or has an alternative investment that is better for them in the long run then a 15% tax rate is actually pretty good.

My children have been in both of those positions. Not everyone should hold onto a gift until they die just to give their heirs a step-up in that specific investment.

True, but I guess my thinking is that if they're in the 0% bracket now, there's no reason not to sell since they'll probably be in a higher bracket in the future. At 15% they could choose to go either way. But as toddthebod pointed out, seems like there's no step up basis after gifting, only carryover basis.

[toddthebod]

Then you have to worry about kiddie tax!

Don't believe that applies to adult children right? If no dependents and under age 24.

Why would it necessarily be better to hold onto the gift just because they aren’t in the 0% bracket? Unless the adult child has solid expectations that they’ll be in a lower tax bracket in the near future, if the child wants to use the money for expenses now or has an alternative investment that is better for them in the long run then a 15% tax rate is actually pretty good.

My children have been in both of those positions. Not everyone should hold onto a gift until they die just to give their heirs a step-up in that specific investment.

True, but I guess my thinking is that if they're in the 0% bracket now, there's no reason not to sell since they'll probably be in a higher bracket in the future. At 15% they could choose to go either way. But as toddthebod pointed out, seems like there's no step up basis after gifting, only carryover basis.

I don't think I've been in the 0% CG bracket since graduating college. Or if I have, there certainly wasn't a lot of room. It's like $58,000 or so in income for a single person these days?

[delamer]

Then you have to worry about kiddie tax!

Don't believe that applies to adult children right? If no dependents and under age 24.

Why would it necessarily be better to hold onto the gift just because they aren’t in the 0% bracket? Unless the adult child has solid expectations that they’ll be in a lower tax bracket in the near future, if the child wants to use the money for expenses now or has an alternative investment that is better for them in the long run then a 15% tax rate is actually pretty good.

My children have been in both of those positions. Not everyone should hold onto a gift until they die just to give their heirs a step-up in that specific investment.

True, but I guess my thinking is that if they're in the 0% bracket now, there's no reason not to sell since they'll probably be in a higher bracket in the future. At 15% they could choose to go either way. But as toddthebod pointed out, seems like there's no step up basis after gifting, only carryover basis.

That makes sense, but it isn’t what you said in the previous post. You said the best option is don’t sell unless they are in the 0% bracket.

[JackoC]

1. I specifically said grandchildren, answering a post which also specifically said grandchildren, and OP's kids are far past college age. But I'm interested what source says room and board by parents doesn't count as gift.

You told me I was wrong. You keep trying to correct me. I have never said the grandparents can pay the room & board without it counting against the annual exclusion. I have been consistent and specific:

The parents pay the room & board and other expenses to reduce their estates. Does not count against their annual exclusion.

Room & board paid by the parents does not count against their annual gift exclusion, so if they are wealthy as well, you won't have anything left to spend the 529 on.

1. Parents can pay for room and board for their college-attending children without concern for gift rules.

I shouldn't need to provide a citation that providing support for your dependent is not subject to gift tax. It's obvious.

On children v grandchildren how about a compromise: You admit it wasn't very relevant to keep saying parents when I specifically said grandchildren in response to a post also saying grandchildren on a thread by OP with children past 30, and I'll admit I should have said 'the Form 709 rules clearly apply to grandchildren' not 'you're incorrect'.

As far as children, you give a commonsense argument why you *should* be allowed to exclude college room and board for dependent children from taxable gifts. I'd be supporting their basic life in my house and it wouldn't be a gift, so why is it at college? But the 709 instructions don't give any counter exclusion based on recipient being a dependent. And let's consider, also practically, the great majority of non-tuition costs are paid by parents if not the students themselves, so why distinguish between tuition and non-tuition in the gift tax rules if it only applies to the minority of cases where the student isn't the giver's dependent? And then not mention that distinction. Plus we know it's possible to give a taxable gift to a dependent. Giving the dependent money counts, even if they spend that on supporting themselves. And while correct answers aren't determined by how many websites say something I think it's notable here the large number of personal finance sites saying you can't exclude non-tuition payments from taxable gifts, parent or not, though presumably they're taking the 709 rules at face value w/o the modification you argue for, that makes some sense but isn't in there. Gray at best to exclude non-tuition payments from taxable gifts as parent IMO.

Which is why I wasn't being snarky asking for a clarifying source. I should have said besides just saying 'they're a dependent, it couldn't possibly be a gift'. I knew that was a possible answer but not what I was looking for.

I also realize if you aren't allowed to exclude non-tuition college costs from taxable gifts to children, then compliance is abysmal. But that's true of the GT in general IME. The outside world isn't like this forum. But here I believe the convention is that even complete lack of compliance doesn't establish anything.

[trueblueky]

I didn't see any mention of the ability to bunch five years of 529 contributions as an exception to the general gift tax rules.

Each spouse could give a grandchild $90,000 and have it count as giving $18,000 each year for five years.

[PassivePanda]

I don't think I've been in the 0% CG bracket since graduating college. Or if I have, there certainly wasn't a lot of room. It's like $58,000 or so in income for a single person these days?

Looks like $47,025.

That makes sense, but it isn’t what you said in the previous post. You said the best option is don’t sell unless they are in the 0% bracket.

I stand corrected.

[toddthebod]

I don't think I've been in the 0% CG bracket since graduating college. Or if I have, there certainly wasn't a lot of room. It's like $58,000 or so in income for a single person these days?

Looks like $47,025.

That makes sense, but it isn’t what you said in the previous post. You said the best option is don’t sell unless they are in the 0% bracket.

I stand corrected.

Plus the standard deduction, so $60,000ish.

[PassivePanda]

I don't think I've been in the 0% CG bracket since graduating college. Or if I have, there certainly wasn't a lot of room. It's like $58,000 or so in income for a single person these days?

Looks like $47,025.

That makes sense, but it isn’t what you said in the previous post. You said the best option is don’t sell unless they are in the 0% bracket.

I stand corrected.

Plus the standard deduction, so $60,000ish.

Is that how it works? I was using this calculator: https://www.nerdwallet.com/article/taxe ... -tax-rates. Didn't see anything about the standard deduction there.

[toddthebod]

I don't think I've been in the 0% CG bracket since graduating college. Or if I have, there certainly wasn't a lot of room. It's like $58,000 or so in income for a single person these days?

Looks like $47,025.

That makes sense, but it isn’t what you said in the previous post. You said the best option is don’t sell unless they are in the 0% bracket.

I stand corrected.

Plus the standard deduction, so $60,000ish.

Is that how it works? I was using this calculator: https://www.nerdwallet.com/article/taxe ... -tax-rates. Didn't see anything about the standard deduction there.

I prefer this one:
https://engaging-data.com/tax-brackets/

[PassivePanda]

I prefer this one:
https://engaging-data.com/tax-brackets/

Right on! Very nice. That's going into the favorite bookmarks. Thanks.