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Give A Gift With Meaning And Worth

In this article
  • Gifts can benefit both you and the recipient
  • Small gifts can grow into big savings
  • Adults can also benefit from gifts
  • Indirect gifts with direct benefits

Currently the IRS offers taxpayers a golden opportunity to give substantial and meaningful gifts up to $14,000 annually (or $28,000 if you give jointly with your spouse) in 2013 to as many people as desired in cash, investments, and/or property without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. This limit may be adjusted for inflation in future years. If you mix in a bit of creativity, you have gifts that can potentially benefit you as well as the recipients.

A Gift For Children, A Tax Break For You

The tax break associated with gifts of up to $14,000 (or more, in some cases) annually can help benefit parents and grandparents, as well as the children on the receiving end, by diminishing the overall contribution to Uncle Sam. This is based on the benefits provided by the Uniform Gift to Minors Act (UGMA) and by the Uniform Transfers to Minors Act (UTMA). This can be especially beneficial for adults looking to minimize their estate taxes.

An UGMA/UTMA account allows you to establish a savings or investment account in a child's name, with one adult named as custodian. However, if you are the custodian of your own gift the account will be included in your estate. In many cases, each parent can contribute up to $14,000 annually without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. These funds can be used to help secure the child's future -- whether they are for college, marriage, buying a house, or other financial challenges. For certain instances, a trust may be more appropriate than a custodial account. Please consult with a tax advisor regarding your particular situation.


Your options include:

  • savings accounts
  • Series EE U.S. Savings Bonds
  • individual securities such as:
    • stocks
    • Treasury bills
    • zero-coupon bond
    • mutual funds

Small Gifts Can Grow Into Big Savings

Through UGMA/UTMA, the first $1,000 per year of unearned (investment) income is tax-free. The next $1,000 is taxed at the child's lower tax rate, which is typically 5% for most children. For children up to the age of 19 and for certain children through age 23, unearned income in excess of $2,000 is taxed at the parent's higher tax rate.

For many, $14,000 may seem like a lot to bestow in one year's time. Although most mutual funds have initial investments of $1,000 to $2,500, many lower those requirements on custodial accounts.

Benefits Of UGMA/UTMA Accounts
  • The IRS allows tax-free gifts of up to $14,000 per child, per year; this limit will be periodically adjusted for inflation.
  • Some mutual funds allow small initial investments.
  • Potential earnings carry tax benefits, which vary depending on the amount of the earnings and the child's age.

Adults Can Also Benefit

Remember that asset gifts are not limited to children. Generally you can also give adults up to $14,000 a year (as many as you like); and it can be in cash, investments, or property. Be sure to consult a qualified tax attorney for details. Keep in mind, however, that the IRS considers the value of the gift as the fair market value of the property at the time of transfer. Therefore, the gift is valued when it is given, not on the investment date nor at the original purchase although the recipient of the gift receives your cost basis to determine gain, if any, on a future disposition. Cars and collectibles can fall into this category of gift.

Qualified Transfers: Indirect Gifts With Direct Benefits

If you don't feel comfortable giving substantial gifts directly to your recipients, the IRS allows another avenue. You can, for example, pay someone's college tuition or medical expenses on a gift-tax exempt basis -- as long as you write the check directly to the institution. This is generally considered a qualified transfer with no dollar limits.

Considerations For Giver And Recipient Alike

Although UGMA/UTMA accounts can be especially good vehicles for college savings, gift-givers should keep several facts in mind:

  • Although UGMA/UTMA may be good college savings vehicles, gift-givers should bear in mind an important fact: Assets held in a child's name can reduce the amount of financial aid they're eligible for.
  • In some cases, children have 100% access to UGMA/UTMA accounts at the age of majority, depending on state law, and do not have to use the money for educational expenses.
  • Adults who sell or redeem gifts at a profit will incur capital gains taxes.

UGMA/UTMA rules make it essential to think ahead. While children are underage, the accounts are administered by custodial adults. When children reach an age defined by each state's law, the money belongs to the child, free and clear. It is important to know that regardless of your initial intentions and wishes, recipients can spend the money as they like; and they are fully responsible for paying taxes on all earnings.

In addition, these situations provide excellent opportunities to educate children about fiscal responsibility.

Points To Remember

  1. Gifts of cash, investments, and other assets can offer benefits to you as well as your recipients.
  2. The IRS allows you and your spouse to each give up to $14,000 per year to as many people as you like without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. This limit may be adjusted for inflation in the future.
  3. This can be especially beneficial for people looking to minimize their estate taxes.
  4. The Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) allows you to set up an investment account in a child's name with an adult named as custodian.
  5. Although many mutual funds require initial investments of at least $1,000, many lower their requirements for a custodial account.
  6. Through an UGMA/UTMA account, the first $1,000 per year of unearned (investment) income is tax-free. The next $1,000 is taxed at the child's lower tax rate, which is typically 5% for most children. For children up to the age of 19 and for certain children through age 23, unearned income in excess of $2,000 is taxed at the parent's higher tax rate.
  7. Any assets held in the child's name can reduce the amount of financial aid they will receive.
  8. When children reach the age of majority, all assets in their UGMA/UTMA accounts are theirs.
  9. You can give gifts of up to $14,000 a year in cash, investments, or property to adults as well.
  10. Remember that should your adult recipient decide to sell or redeem your gift, he or she will be responsible for any capital gains tax.


Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Life insurance and annuities are issued by an affiliate, AXA Equitable Life Insurance Company (NY, NY) and by various unaffiliated carriers. Securities products and services are offered through AXA Advisors (member FINRASIPC), 1290 Avenue of the Americas, NY, NY 10104 (212-314-4600). Securities (including mutual funds) are not FDIC insured, not bank guaranteed and subject to investment risk, including possible loss of principal invested. AXA Advisors and AXA Equitable are affiliated and do not provide tax or legal advice.

Amount in equity investments are subject to fluctuation in value and market risk, including loss of principal.

International securities carry additional risk including currency exchange fluctuation and different government regulations, economic conditions or accounting standards.

Stocks of small-size companies may have less liquidity than those of larger companies and may be subject to greater price volatility than the over all stock market. Smaller company stock involve a greater risk than is customarily associated with more established companies.

Bond investments are subject to interest rate risk so that when interest rates rise, the prices of bonds can decrease and the investor can lose principal value.

An investment in a money market fund is not insured or guarantee by the Federal Deposit Insurance Corporation or any other government agency.

Please consider the charges, risk, expenses and investment objectives carefully before purchasing a mutual fund. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.

Information provided has been prepared from S&P Capital IQ Financial Communications sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. S&P Capital IQ Financial Communications is not an affiliate of AXA Equitable. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as S&P Capital IQ Financial Communications, shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

(03/2007)