Gifting for Education Savings
Definition
A gift is a voluntary transfer of money or property from one person to another person or entity (such as a trust) where the person making the gift receives either nothing or a lesser amount of money or property in return. In the context of education planning, gifts are usually made from parent to child as a way to shift income and reduce taxes.
Prerequisites
- You must have an asset to gift to your child
Key Strengths
- Can be used to shift income to lower tax bracket
- Child retains parents' cost basis in gifted asset
- Capital gains tax rates are lower for individuals in 15 percent tax bracket and below
- Reduces size of donor's gross estate
Key Tradeoffs
- The kiddie tax may limit your tax savings
- Transferring assets to child may reduce his or her financial aid award
- Gifting assets to your child is irrevocable
Variations from State to State
- States may have different gift tax laws
How Is It Implemented?
- Change title or deed to child's name and record, if required
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