If I wanted to gift a family member a larger than $15k sum of money, I understand the "gift tax" comes into play.

What is the process? I have to file a Form 709, but then what. Does the IRS come after the person that received the gift, and tax that under their income bracket? What is the tax rate on the "gift"?

Casey TableTennis said:

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If you have spouse and/or advanced estate planning strategies, this can be further managed with no taxes.

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To build on that, it's per child per parent including children-in-law

So, my folks could gift my wife and me a total of $60k/year without it triggering

$15k per gift x 2 parents x 2 children (wife and me)

Both grandparents (your parents) in your example could split the gift and each be treated as making a $15000 gift that can be made to you , your wife, and your two children. Thus your folks can gift up to $120,000 this year in your example without eating into their lifetime exclusion.

OP -

For 99% of people there is no gift tax implications on gifts. You can do the 709 but most likely its meaningless.

Obligatory I am not your tax accountant.

This helps keep errant children in line as well.

TxAg20 said:

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You can also "loan" money and forgive the loan at a rate of $15,000 per year.

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How does that work in terms of death? If I have stage 4 cancer and I loan my daughter $1,000,000 how does that work when I pass away?

Sully Dog said:

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TxAg20 said:

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You can also "loan" money and forgive the loan at a rate of $15,000 per year.

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How does that work in terms of death? If I have stage 4 cancer and I loan my daughter $1,000,000 how does that work when I pass away?

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Deathbed loans are pretty much always a bad idea. Very limited potential advantage over a gift, many disadvantages.

Typically the loan is still due, and now the estate may be held open due to said loan, among many other potential problems.

Self Cancelling Installment Notes (SCINs) are a very handy structure for intra-family loans, and can include forgiveness at death of lender. There could be some theoretical tax arbitrage here when there income event is recognized, but it is a grey area and high potential for IRS contesting, IMO.

Generally for a loan to make sense (vs gift) it needs to be efficient for the family. Is it improving yield for lender and terms for borrower vs other oppty? Is it getting $ from low risk older family member to higher risk seeking younger family member moving future grow out of High net worth older family member's estate? Things like this are a good reason for loan vs gift, but they typically take time to reach full benefit/potential.

The gift limits are also annual, so you could gift someone $15k on dec 31 and $15k on Jan 1.

At least that's my understanding.

The true beauty is the gift is per person to each individual. Unless you're absurdly wealthy, you should be able to give away all your money in your lifetime to your heirs without triggering estate tax.

Form 709 with instructions is a bear. Look it up out of curiosity if for no other reason. Let's suppose that you give a brother $17,000. You are supposed to complete that monstrosity. Good luck!

15k is the annual exclusion, not a tax-free limit. That is, as long as the gift is less than 15k you don't even need to tell the IRS about it. Over 15k just triggers form 709, but still no tax due until all your 709s exceed 11 plus millon dollars. And for a married couple I believe the limits double. So most of us "regular folks" won't pay gift tax. Of course, the laws could change. (Also often misunderstood is that the recipient never pays the gift tax. It's paid by the person making the gift.)

Another strategy is to gift things that command a discount; like limited partnership shares in a family LP. That takes some appraisal work and costs in setting up and maintaining a separate legal entity so is probably best only for larger gifts in the realm of generational wealth planning.

Side note: if someone (i.e. a child) owns those LP shares before a marriage they would not be considered community property. Kinda helps with the potential crazy azz in-law issues.

You may have missed my point, which is that it is a ridiculous IRS form. There should be a short form to reports gifts that by hundreds or a few thousand exceed the excluded amount. My guess is that in many instances the form is not completed.

strbrst777 said:

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You may have missed my point, which is that it is a ridiculous IRS form. There should be a short form to reports gifts that by hundreds or a few thousand exceed the excluded amount. My guess is that in many instances the form is not completed.

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For most it doesn't matter. For real, there's no point.

Unless they significantly lower the estate tax threshold - but if they do that, there will be tons of issues.

Darby,

About ten years ago, my now deceased mother in law sold her home. She divided the proceeds into thirds, giving one third each to her two children, and keeping the remaining third. The amount my wife received far exceeded the amount one could gift per year, which I believe was around $10,000. We never paid taxes on the gift, and the IRS never came after us. Our tax preparer did tell us the total amount my mother in law gifted would be subtracted from the total she could legally pass on, without paying taxes, at her death. When she died, she was well below the threshold so no taxes were paid. Good luck.

$30,000 Millionaire said:

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My CPA still won't talk to me after the 600 pages of options trades from last year.

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that when I write "see attached Statement of Realized Capital Gain" on that schedule D and attach that report to your efile.

problem solved!

Notice the wink. I was joking. :-)

ToddyHill said:

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Darby,

About ten years ago, my now deceased mother in law sold her home. She divided the proceeds into thirds, giving one third each to her two children, and keeping the remaining third. The amount my wife received far exceeded the amount one could gift per year, which I believe was around $10,000. We never paid taxes on the gift, and the IRS never came after us. Our tax preparer did tell us the total amount my mother in law gifted would be subtracted from the total she could legally pass on, without paying taxes, at her death. When she died, she was well below the threshold so no taxes were paid. Good luck.

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yeah it becomes problematic when you are above the estate tax threshold. :shrugs:

gigemhilo said:

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$30,000 Millionaire said:

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My CPA still won't talk to me after the 600 pages of options trades from last year.

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that when I write "see attached Statement of Realized Capital Gain" on that schedule D and attach that report to your efile.

problem solved!

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do it for way less.

I fully expect lifetime exclusions to drop to $5m or even lower over the next few election cycles.

I set up irrevocable trusts a few years ago for each of my kids and I max the non-reportable gift every year from both me and from my wife. I'll set up for the grandkids as they come to be as well.

I also like that I can make them payable to the kids at later ages and/or based on milestones.

I hope to live long enough to transfer it all before I die and avoid paying taxes on the same damn money that's already been taxed several times.

FrioAg 00 said:

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I also like that I can make them payable to the kids at later ages and/or based on milestones.

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I almost always prefer a lifetime trust vs staged distributions. Gives better catastrophic creditor protection and some protection against kids/grandkid's "roque spouses". However, I do have some incentive language in my personal docs to give ttee latitude for some milestone/entrepreneurship reasons.

Typically also try to stage in control with something like can become sole-trustee at later of attaining a specific age (I.e 40) or 5 years serving as co-ttee, to put some training wheels on decision making. But, this piece is more tailored vs just a general preference for lifetime trusts.

The recipient of the gift does not pay gift taxes. Taxes, if any, are paid by the giver. Inheritances are not gifts. I am not a CPA. A CPA might elaborate with finer points.

All I was saying is that 709 is a bear of a form. Read it and the many pages of instructions. My point was not if I can afford a CPA and it was not that only a few will ever give enough $ to exceed the excluded amounts. My post was about Form 709...that's all.

FrioAg 00 said:

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I fully expect lifetime exclusions to drop to $5m or even lower over the next few election cycles.

I set up irrevocable trusts a few years ago for each of my kids and I max the non-reportable gift every year from both me and from my wife. I'll set up for the grandkids as they come to be as well.

I also like that I can make them payable to the kids at later ages and/or based on milestones.

I hope to live long enough to transfer it all before I die and avoid paying taxes on the same damn money that's already been taxed several times.

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Biden and Co. were wanting to return to the $3.5M from 2009(?), but Goldman's was predicting it would settle at $5M.

5m seems to be the consensus.

Gotcha. I was just trying to be helpful!

strbrst777 said:

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The recipient of the gift does not pay gift taxes. Taxes, if any, are paid by the giver. Inheritances are not gifts. I am not a CPA. A CPA might elaborate with finer points.

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you are correct here, and it is a source of a lot of confusion for people because they use the terms interchangably. But the IRS certainly has not helped in this regard since the gift tax (709) and inheritance tax (706) are so intertwined in regards to gift tax exclusion and the inheritance exclusion..

Not one Shawshank reference.

Darby said:

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If I wanted to gift a family member a larger than $15k sum of money, I understand the "gift tax" comes into play.

What is the process? I have to file a Form 709, but then what. Does the IRS come after the person that received the gift, and tax that under their income bracket? What is the tax rate on the "gift"?

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There are certain exceptions depending on what the money is for

gigemhilo said:

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strbrst777 said:

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The recipient of the gift does not pay gift taxes. Taxes, if any, are paid by the giver. Inheritances are not gifts. I am not a CPA. A CPA might elaborate with finer points.

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you are correct here, and it is a source of a lot of confusion for people because they use the terms interchangably. But the IRS certainly has not helped in this regard since the gift tax (709) and inheritance tax (706) are so intertwined in regards to gift tax exclusion and the inheritance exclusion..

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Yep. As that was my point. Tracking lifetime gifts is a bigger deal when estates are above the taxable threshold.