We provide this free financial resource to visitors of the Community Room of SeniorSSuperStoreS in an effort to keep baby boomers, seniors and the elderly informed of matters that can affect their lifestyle.

Parents and grandparents give financial gifts to their children and grandchildren for many and varied reasons, and, it's not just Christmas and birthdays. Many parents and grandparents give money to family members in order to reduce the size of estates that will be subject to estate tax.

Any person can give up to $10,000 per year to each of an unlimited number of people without triggering gift or income tax.So, this means that you and your spouse are able to each give $10,000, for a total of $20,000, per year to anyone you choose to get the money out of your estate without incurring any gift tax or income tax.

However, for many people, the tax incentive for big gifts is withering away. That's because federal estate tax thresholdd will gradually increase to $3,500,000 in 2009. In 2010, there will be no federal estate tax at all. But, the tax will come back in 2011, again with a $1 million threshold unless the federal government makes the repeal permanent. If you are trying to decide whether to give cash, buy securities for a child or give as a gift securities that you already own, keep these changes in mind.

What income tax benefits are in store if you do give away an asset that has increased in value? Most children, if they are over the age of 14, are in the bottom income tax bracket. (If the child is under the age of 14, his/her tax rate on unearned income is the same as the parents' rate, and selling the asset you gave him/her would be unearned income.)

So, if you sold the asset and then gave the child the proceeds as a gift, you would be taxed on the gain at your sale. On the other hand, if you gave the appreciated asset to the child over the age of 14, and he/she sold it, the sale would be taxed at much less.In fact, if a security has been held for at least 5 years, the tax rate to the child is even lower (only 8 percent).

Also new this year are the rules on state-sponsored investment plans used for college tuition. Previously, taxes on profits in these investments were postponed until the money was withdrawn to pay for college under the premise that the child-owner of the funds would be in a low tax bracket. But, profits taken out starting in 2002 will be tax-exempt so long as the investments were held at least a year in the college fund plan. Remember, these are special investment plans sponsored by the states specifically for paying college tuition and are governed under Section 529 of the Internal Revenue Code.

There is also another vehicle you can use to help a child with his/her college tuition yet get the funds out of your estate: the Education IRA. The earnings in these special college savings vehicles (now known as Coverdell Education Savings Accounts) are tax exempt, and the annual investment limit is now $2,000 per year. You must be careful, however, about whether the child qualifies for a Coverdell account, so it is best to discuss these rules with a broker or investment fund company.

In conclusion, if your estate is sizeable enough to perhaps be subject to federal estate taxes despite these new higher thresholds or if you just want to help out a child or grandchild, keep these new and expanded options in mind.