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
"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
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
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can be withdrawn tax-exempt, provided it is used to pay for college,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.
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
For further information:
Media inquiries: Caroline Van Hasselt, Director, CIBC External Communications and Media Relations, (416) 784-6699, firstname.lastname@example.org or Carolyn Donnelly, Atlantic Trust Director of Marketing, (404) 881-3417, email@example.com.