What is Monetary Gift - A Complete Guide And 5 Example of Monetary Gift

Sure, giving a gift is a way to say that you care, but giving a monetary gift is like adding an extra mile to your love and care. And well, of course, giving gifts of money to your loved ones, family, children, and grandchildren provides them extra financial security. You can give these gifts in various forms such as an envelope filled with cash or a monetary gift card or certificate, assets, financial gifts, or a gift of a lifetime.

But giving a monetary gift also comes up with a set of rules and regulations. It is better to know these rules beforehand to avoid the last-time hassle for both parties. And if you are planning to give the gift of a lifetime or a big monetary gift then you should also know the best ways to give money as a gift so that you can be exempt from taxes.

Table of Contents

What is Monetary Gift?

In simple terms, a monetary gift is a gift of money to the donee in which the donor doesn’t get anything in return from the donee. According to Internal Revenue Service, the definition of a monetary gift is, “You make a gift if you give property or money, or the use of or income from property, without expecting to receive something of at least equal value in return”. These gifts also come under taxation but with a tax exemption limit.

Things to consider before giving the gift of a lifetime

A monetary gift of a lifetime is also like a giving gift of money but for a lifetime. It is also like transferring your inheritance or assets or property to your child or grandchild. Usually, these type of gifts or transfers of inheritance is done after posthumous. But if you do it in your lifetime then you get the option to choose your donee and it may also reduce probate cost, estate, and income taxes.

In the US, the exemption limit for gifts of a lifetime is up to 12.92 million dollars and one should make the best use of this limit. Therefore, you should consider the following points before giving the gift of a lifetime.

Can Gift To Multiple Donees

Effective from January the federal annual exclusion amount is $17,000. In this case, the donor may give cash or property to multiple donors with a monetary value of up to $17,000 per recipient annually. In the case of the lifetime gift, the estate tax exemption limit is $12.92 million, and for married couples is $25.84 million.

Spouses get the double offer

In this gifting strategy, a married couple can choose to split the gift which means husband and wife jointly make a lifetime monetary gift of up to $34,000 per recipient. For example, the father can give a $17,000 gift to his sons and the mother can give a $17,000 gift to their spouses.

Some monetary gifts do not come under taxation

Medical expenses and educational expenses are excluded from the taxation. For example, paying for the medical insurance premium directly to the provider and paying for the school or college fees for the whole year directly to the institution.

Examples & Alternatives for Monetary Gifts

Above we have understood the term monetary gifts and learned about what it is. And we have also learned about the best ways to give lifetime gifts considering all the annual tax exemption limits and lifetime tax exemption limits. In this section, we’ll talk about the examples and the alternative of these gifts. So, some of monetary gifts examples are –

i) Contribution in 529 plan

It can be the best way to give money as a gift because it is a tax-advantaged saving plan. This plan will help the donee in his/her education or apprenticeship program.

ii) UTMA account as a gift

It is also a tax-advantaged joint investment account plan. This account is set up by the donor for the benefit of the child and it is managed by the adult until the child becomes eligible to manage this account on its own. Contribution to this account is considered a money gift to the child.

iii) Certificate of deposit/ saving account

It is the perfect gift for a child’s higher education or for those who might need financial support not now but in the future at some point in time. It is a savings account where you kept your money for a certain period and for that duration bank will pay you interest.

iv) Monetary gift cards

Giving a gift card to your loved ones from their favorite store comes under monetary gift. Make sure that your gift card is not exceeding the exemption limit and you are good to go.

v) Stocks as monetary gifts

Another example is gifting stock to your close ones. All you have to do is to transfer your share into their account by filling out a transfer form.

What are the Benefits of Giving a Monetary Gift

Giving monetary gifts is always considered a loving and caring gesture. Usually, people give away these type gifts at birthdays, weddings, graduation parties, and other occasions. But especially for family, like for your grandchild or son or very close relative, you can go for a big monetary gift or you can choose for the gift of a lifetime.

These gifts not just financially help the donee but also help the donor in exempting the taxes. The most important thing or you can say the benefit is the feeling of contentment of the donor. Seeing that the donees or loved ones or children are getting benefited from his monetary gift, will absolutely bring happiness and contentment on the faces of donors.

How to Give a Monetary Gift and Pay the Fewest Taxes

Giving away a monetary gift to a family or friend or loved ones comes under the federal gift tax. But one can avoid the situation of taxation by staying below the exemption limit. The gift tax annual exclusion limit is $17,000 and for married couples is $34,000.

Other than that for the future of your children, donors can invest in UTMA or contribute to the 529 plan. Investing in these plans is considered as a gift to a donee or child and these plans are tax-advantaged. And younger or working people can give monetary gifts to their parents by opening Roth IRA which is also tax-advantaged.

Final Thoughts

Giving a monetary gift is always a caring gesture towards your loved ones. Whether you are giving a monetary gift or a gift of a lifetime, it is always better to remain below the threshold or up to the threshold limit. We can also see that the tax exemption on monetary gifts has increased from the previous years. And everyone should take advantage of that by financially securing the future of loved ones while getting exempted from the gift taxes.