During the holiday season, we receive an influx of questions from clients regarding gifting. Estate planning is an excellent tool for giving to our loved ones and charitable organizations, not only after we're gone, but while we are alive and well. Gifts can take many forms beyond the traditional sense. One such example is the gift of health.
People often wonder if payments of health insurance premiums for a child, grandchild, or other party are subject to federal gift or generation-skipping transfer taxes. Internal Revenue Code § 2503(e)(2) excludes from gift tax any amount paid on behalf of an individual:
(A) as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or
(B) to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care.
For this purpose, medical care is defined under Section 213(d) as amounts paid:
Note, there are caveats:
In order to get the benefit of the Section 2503(e) exclusion with respect to insurance premiums, the payment must be made directly to the insurer. Likewise, the exclusion for other medical payments only applies if the payment is made directly to the health care provider, and the exclusion for tuition payments only applies if made directly to the institution. Gifts to the beneficiary that are later used for educational or medical purposes are NOT excluded!
To discuss the various estate planning tools that can be used to facilitate gifts to the people or organizations that you hold near and dear to your heart, please contact us!