Educational Giving With a 529 Savings Plan

May 31, 2013

The gift tax is in place to dissuade people from giving away their assets while they’re still alive to avoid the estate tax. It is unified with the estate tax, and as a result the $5.25 million exclusion that you hear about is a unified one. This means that it applies to both the gifts that you give while you’re living that are taxable and the value of your estate.

As a result, under the current $5.25 million exclusion if you gave away $3.25 million in taxable gifts during your life only $2 million would be left to apply to your estate after you pass away.

This unified exclusion is not the only gift tax exclusion. You can give $14,000 to as many people as you want to each year tax-free. You wouldn’t be using any of your unified gift/estate tax exclusion until you give more than $14,000 to a particular individual in a single year.

You don’t have to give direct gifts to use this $14,000 annual exclusion. If you have someone in the family who will be going to college you could choose to fund a 529 college savings plan using this exclusion.

These plans allow for the assets to grow in a tax-free manner. The beneficiary utilizes the funds to pay for approved expenses when he or she enters a college or university.

Using this exclusion in this manner is a great way to gain some estate tax efficiency as you provide a loved one with a very valuable opportunity to obtain an educational foundation.

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Ryan M. Denman and Dennis D. Duffy

Duffy Law Office, PLLC



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