Gift tax on tuition payment?

My older son is receiving a distribution from a qualified trust. He thinks it is unfair my younger son is getting nothing, and wants to split it with him. The final figure is much higher than I expected; yearly gifts of $14,000 will take a while.

Younger son has a 3 semesters left of college. Can older son pay for it (directly to the college) without affecting the $14,000 a year tax free gift? That is what I have read, but about half the info on the internet is wrong; so I wanted to confirm it.

Would older son get any tax benefit for that, or does it stay with me regardless?

Reply to
Troubled
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First, one can give more than $14K/year free of current gift tax; that is just the reporting threshold.

Second, it is correct that payments made directly to the school for someone else's tuition are not subject to gift tax rules. You might also consider a Sec. 529 Qualified Tuition Plan (QTP) with the younger brother as a beneficiary, and I think there is an option to treat the initial amount funded as being spread across 5 years for gift tax purposes (i.e. $70K = 5 x $14K). A 529 plan may or may not suit the overall situation, we don't have enough info.

Third, education tax benefits are only available to the student or someone who claims the student as a dependent, so no, older son gets no tax benefit for paying education expenses for younger son, nor would you.

Reply to
Mark Bole

I just read over the instructions to Form 709. Geez! When you say "current gift tax", the only way tax can be avoided is by decreasing the lifetime exemption of $5,250,000, right?

If older son gives younger son $14,000 and makes two $20,000 tuition payments directly to younger son's college, does he have to file a 709? I don't think so, but it is so darned confusing. Thanks

Reply to
Troubled

Page 2 of the 709 instructions tells you that the gift tax does not apply to payments made directly to a qualified educational institution for TUITION. Therefore, the answer to your question is that no 709 need be filed.

Reply to
Alan

Decreasing the lifetime exemption will increase the likelihood of paying gift/estate tax, not avoid it.

Parenthetically, if older son is married he can give double the amount, but he will have to file a 709 and claim gift splitting. But the money will not count against his lifetime exemption.

Reply to
Stuart A. Bronstein

I think the other replies have answered your questions. I might add that if your older son expects his estate to total in the $5 million range or higher, seeking professional financial and legal help regarding gifts he makes during his life might be a good investment.

Reply to
Mark Bole

Well sure, it increase the chances of paying estate tax in 50 years, but it avoids gift tax now. right?

Great. Not a complete solution, but a start.

Reply to
Troubled

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