Federal Estate Taxes

1. Lifetime Gift Tax Exclusion

The lifetime gift tax exclusion is the maximum number of gifts a person can give during their lifetime tax free. Beginning in 2018, the lifetime gift tax exclusion is $11.18 million.

2. Payment of Medical Expenses or to Educational Institutions

An individual can make payments, in addition to annual exclusion gifts, for medical payments and tuition expenses. In order to qualify, the payments must be made directly to a qualified education institution, health insurer (in the form of premiums), or to a medical provider.

The education exception is limited to tuition only, and will not apply to books, school supplies, or college dormitories.

3. 529 Plans

A 529 Plan is a tax-advantaged college savings account. Income in the 529 Plan and distributions from the 529 Plan college expenses such as tuition, books, and room and board are received free of income taxes.

Florida’s 529 Plan is commonly referred to as “Florida Prepaid.” Further information about Florida Prepaid can be obtained here.

4. Generation-Skipping Transfer (GST) Tax Exemption

The GST Tax Exemption is the amount that can be directly given to grandchildren by their grandparents without incurring a federal generation-skipping transfer tax. Prior to the GST Tax, grandparents would transfer money to their grandchildren (hence the generation-skipping) in order to avoid the parents’ generation from being subject to the estate tax.

The IRS imposed the GST tax at the top estate tax rate, currently 40%, in order to prevent this behavior.

However, there is a GST tax exemption of $11.18 million that can be directly transferred to grandchildren or into a GST Tax Exemption Trust without incurring the GST tax.