Learning Center

Back

Considerations When Making Gifts to Children

If you make significant gifts to your children or someone else’s children (perhaps a grandchild, a nephew, or a niece), or if someone else makes gifts to your children, there are a number of things to consider.



Nontaxable Gift Transfers

There are a variety of ways to make transfers to children that are not treated as taxable gifts. Filing a gift tax return is generally required only if you make gifts (other than qualified transfers) totaling more than $15,000 per individual during the year.

Providing support. When you provide support to a child, it should not be treated as a taxable gift if you have an obligation to provide support under state law. Parents of minor children, college-age children, boomerang children, and special-needs children may find this provision very useful.

Annual exclusion gifts. You can generally make tax-free gifts of up to $15,000 per child each year. If you combine gifts with your spouse, the amount is effectively increased to $30,000.

Qualified transfers for medical expenses. You can make unlimited tax-free gifts for medical care, provided the gift is made directly to the medical care provider.

Qualified transfers for educational expenses. You can make unlimited gifts for tuition free of gift tax, provided the gift is made directly to the educational provider.

For purposes of the generation-skipping transfer (GST) tax, the same exceptions for nontaxable gift transfers generally apply. The GST tax is a separate tax that generally applies when you transfer property to someone who is two or more generations younger than you, such as a grandchild.

Income Tax Issues

A gift is not taxable income to the person receiving the gift. However, when you make a gift to a child, there may be several income tax issues regarding income produced by the property or from sale of the property.

Income for support. Income from property owned by your children will be taxed to you if used to fulfill your obligation to provide support.

Kiddie tax. Children subject to the kiddie tax are generally taxed at their parents’ tax rates on any unearned income over $2,200 (in 2021). The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn’t exceed one-half of their support, and (3) those ages 19 to 23 who are full-time students and whose earned income doesn’t exceed one-half of their support.

Basis. When a donor makes a gift, the person receiving the gift generally takes an income tax basis equal to the donor’s basis in the gift. The income tax basis is generally used to determine the amount of taxable gain if the child then sells the property. If instead the property were transferred to the child at your death, the child would receive a basis stepped up (or down) to the fair market value of the property.


Transfer by Gift Versus Transfer at Death

Difference in taxable gain when appreciated property is sold at fair market value (FMV) after the transfer.

 Calculation steps: Sales price (FMV). Transfer $100,000 by gift minus income tax basis of $20,000 (carryover of donor’s basis) =  a taxable gain of $80,000. Transfer $100,000 at death minus $100,000 stepped-up to FMV =  $0 taxable gain.


Gifts to Minors

Outright gifts should generally be avoided for any significant gifts to minors. For this purpose, you might consider a custodial gift or a trust for a minor.

Custodial gifts. Gifts can be made to a custodial account for the minor under your state’s version of the Uniform Gifts/Transfers to Minors Acts. The custodian (an adult or a trust company) holds the property for the benefit of the minor until an age (often 21) specified by state statute.

Trust for minor. A Section 2503(c) trust is specifically designed to obtain the annual gift tax exclusion for gifts to a minor. Principal and income can (but need not) be distributed to the minor before age 21. The minor does generally gain access to undistributed income and principal at age 21. (The use of trusts involves a complex web of tax rules and regulations, and usually involves upfront costs and ongoing administrative fees. You should consider the counsel of an experienced estate professional before implementing a trust strategy.)


Information provided has been prepared from Broadridge Advisor Solutions 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. Broadridge Advisor Solutions is not an affiliate of Equitable Advisors, LLC. Please consult your tax and legal advisors regarding your particular circumstances. Neither Equitable Advisors nor any of the data provided by Equitable Advisors or its content providers, such as Broadridge Advisor Solutions, shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the Equitable Advisors website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

Securities offered through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Annuity and insurance products offered through Equitable Network, LLC and its subsidiaries.

California Insurance License #: 0C02915

The Retirement Planning Specialist title is awarded by Equitable Advisors, based upon the Financial Professional's (FP) receipt of a Certificate in Retirement Planning from the Wharton School, University of Pennsylvania. In a collaboration between the Wharton School and Equitable Advisors' affiliated life insurance carrier, coursework for the certificate was developed exclusively for Equitable Advisors FPs, and the title may be used only by FPs who have completed the required coursework and maintain the title through ongoing continuing education requirements. To verify that an FP has earned and holds the title in good standing, contact us at atretirement@equitable.com. Complaints about an Equitable Advisors FP should be directed to customer.relations@equitable.com.

Securities offered through Equitable Advisors, LLC (NY,NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN). Investment advisory products and services offered through Equitable Advisors, LLC, an SEC registered investment advisor.

Annuity and insurance products offered through Equitable Network, LLC, which conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, and in PR as Equitable Network of Puerto Rico, Inc. Equitable Advisors and its affiliates do not provide tax or legal advice. Please consult your tax and legal advisors regarding your particular circumstances. Individuals may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. The information in this web site is not investment or securities advice and does not constitute an offer.

Synergy Wealth Management is not a registered investment advisor and is not owned or operated by Equitable Advisors or Equitable Network.

For more information about Equitable Advisors, LLC you may visit equitable.com/crs to review the firm’s Relationship Summary for Retail Investors and General Conflicts of Interest Disclosure. Equitable Advisors and Equitable Network are brand names for Equitable Advisors, LLC and Equitable Network, LLC, respectively.

Link to equitable.com

Privacy Policy

Check the background of this financial professional on FINRA's BrokerCheck
Check the background of this financial professional on FINRA's BrokerCheck