Learn strategies for leaving a lasting legacy to grandchildren, says Atlantic Trust

Grandparents can leverage federal exemptions to provide a financial cushion for their adult children and grandchildren

ATLANTA, June 26, 2014 /CNW/ - Grandparents who wish to provide financial support to their children, grandchildren or other family members can avoid having to pay costly gift taxes by taking advantage of certain lifetime and annual federal exemptions, according to Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).

It may be a natural desire to want to provide a financial cushion for children or grandchildren, or to help pay for major expenses like education, but doing so could subject donors to a gift tax of up to 40 percent. For gifts from grandparents directly to their grandchildren, a 40 percent generation-skipping transfer (GST) tax could apply as well. Fortunately, there are some strategies to mitigate the impact of these taxes.

"You can mix and match various funding techniques just like you would diversify an investment portfolio," says Judith A. Saxe, wealth strategist at Atlantic Trust. "We have clients who make direct payments of private school tuition, have set up an education trust for each grandchild and have used various wealth transfer strategies to fund additional trusts that can be used for education in conjunction with other purposes."

Potential benefactors may not know that they can give up to $14,000 in cash or assets per year (spouses can combine this annual exclusion to give $28,000) to as many individuals as they want without having to worry about gift or GST tax. There is also a lifetime exemption of $5.34 million ($10.68 million for married couples) before the gift tax applies.

For example, a couple with an adult child who is married and has two children could make a joint cash gift of $28,000 to the adult child, the child's spouse and each grandchild—four people—providing the family with an extra $112,000 per year. If the grandchildren are minors, their parents can be named as custodians of that gift.

Another way to apply the grandchildren's portion of the annual exclusion is to fund Section 529 education savings plans. Money in these accounts can be withdrawn tax-exempt, provided it is used to pay for college, vocational school or other accredited forms of education. For grandparents who desire more flexibility regarding use of the funds, such as to begin a business or purchase a home, using available gift exemptions to fund a personally designed trust may be the best answer.

Some expenses can be paid for without having to use the federal exemptions at all. Grandparents generally can make unlimited payments for the medical, educational or dental expenses of anyone they want, tax-free, as long as they pay directly to the service provider.

Benefactors who have family members relying on their wealth may also provide a safety net for their loved ones to guard against hardship in the event of financial emergencies. For more information about setting up such a safety net or to learn more about other wealth transfer strategies, consult with your tax advisor—or, as a starting point, visit Atlantic Trust's Resource Center online at www.atlantictrust.com, or read "Gifting to Grandchildren: A Lasting Legacy."

The tax information contained herein is general and for informational purposes only. Atlantic Trust does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

About Atlantic Trust

Atlantic Trust is one of the nation's leading private wealth management firms, offering integrated wealth management for high net worth individuals, families, foundations and endowments. The firm considers clients' financial, trust, estate planning and philanthropic needs in developing customized asset allocation and investment management strategies. Experienced professionals deliver a broad range of solutions, including proprietary investment offerings and a robust open architecture platform of traditional and alternative managers. Atlantic Trust operates in 12 full-service locations throughout the U.S. with $24.4 billion in assets under management (as of April 30, 2014). For more information, visit www.atlantictrust.com.

About CIBC

CIBC is a leading Canadian-based global financial institution. Through our Retail and Business Banking, Wealth Management and Wholesale Banking businesses, CIBC provides a full range of financial products to individual, small business, commercial, corporate and institutional clients in Canada and around the world. CIBC owns a 41 percent equity interest in American Century Investments®, a major U.S. asset management company, serving financial intermediaries, institutions and individuals, and acquired Atlantic Trust, a premier U.S. private wealth management firm, in January 2014. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.

SOURCE: Atlantic Trust Private Wealth Management

Media inquiries: Caroline Van Hasselt, Director, CIBC External Communications and Media Relations, [phone], [email protected] or Carolyn Donnelly, Atlantic Trust Director of Marketing, (404) 881-3417, [email protected].