Tax folks: Receving/giving large sum of money as a 'gift'?

[Vipergrün]

I've been pouring through the IRS publications and 'think' I understand how things work, but would like a sanity check.

Hypothetical scenario: A parent wants to give a one time cash gift of 40K to a child.

The annual exclusion is 12K per recipient without the donor incurring a tax liability or having to file a tax form. Since 28K of the gift would be subject to taxes, a tax form would be filed, but the donor would not have to pay taxes on the 28K because they can apply it against the annual gift credit of 345K. This would leave 317K of remaining gift credit for the remainder of the year.

Neither the recipient or the donor would be liable for taxes.

Is this correct?

Thanks!
-Brad

[speeder]

Five words:

Brown paper bag full of cash.

OK, that was six.

[Vipergrün]

Thanks Denis.... Anyone else?

[Porsche-O-Phile]

Might it be easier to make the transfer in the form of a "sale" of easily liquidated assets for $1, then have the recipient sell the merchandise for market value?

I have no idea if this would work or if it's legal, just a thought.

[lendaddy]

Give a large amount to me as a test and we'll see how it plays out. I mean no theory is complete without a control test.

[berettafan]

Originally Posted by Dueller

Have one parent give 12 and the other parent give 12. Ditto to wife or SO...that allows 48K to be transferred without necissisty of GTR.

If there is only one parent involved and child does not have spouse, then your assumption on no tax liability is correct (dependant on anticipated size of parent's estate) but keep in mind at the parents death the excess gift is backed out of their estate tax exclusion.

Beat me to it.

[Tishabet]

Originally Posted by Dueller

Another possibility is have the parent "loan" you the money, prepare a note with interest at the applicable federal rate and then make a gift each year of forgiven interest and a portion of the principle less than 12K.

YMMV

Beat me to it....

[Vipergrün]

Thanks all. There is one parent, two children, and two grand children. I assume the parent could pass 12K to each family member?

Dueller, the estate is small, so there should not be an issue down the road even with backing out the gift exclusion.

cheers
-Brad

[Dueller]

get competent legal counsel.

[Vipergrün]

Originally Posted by Dueller

Yes...if you had asked about this in December she could have given 12K to each on 12/31 and another 12K to each on 1/1/08 for a total of 96K in 2 days with no need for GTR..

If its under $2M there will be no estate tax liability under current law. But there is a crazy repealer clause that hits in 2009 (I think) where it reverts back to 600K if there is no action by Congress. Unlikely...most pundits feel that it will be set somewhere around $3-5M exclusion. But who d fok knows?

Yeah, I thought about the Dec 31 / Jan 1 thing. Which is considered, the date on the check, or the date of the deposit?

Thanks!
-Brad

[Vipergrün]

Originally Posted by Dueller

It really depends on what she's trying to accomplish. Is she wanting to help out with a downpayment on a house, fund grandkids college, just make life a little easier for you, payoff your mortgage? Or trying to use up $$$ to qualify for Medicaid in the event of a nursing home stay.

Not trying to get in your business but there are a number of options depending on what the purpose of the gift is....If its the last one tread cautiously and get competent legal counsel.

You all are like a second family and I do not mind sharing. My mother-in-law has terminal, stage 4 cancer. She has a house that is paid for and some money in the bank. She wants to be able to dole out some of the cash while she is still around and see the kids enjoy it. While it may sound like a fortuitous windfall to some, it's not the way you want to receive money......

[Dueller]

basis.

[berettafan]

Those reading Dueller's advice PLEASE be aware that it is specific to this situation and may not be appropriate for others where preservation of assets/nursing home care becomes an issue.

Additionally, cancer treatments can cost big $$ and consideration of your state laws regarding the payment of those and recent transfers to relatives is worth considering as well.

I am unfortunately somewhat familiar with these issues as my wife's father is suffering a prolonged battle with cancer.

[VaSteve]

Originally Posted by Dueller

get competent legal counsel.

Or a CPA. This is what they are for.

(yes, I am endorsing the profession)

[greglepore]

Yes, you are correct, you can gift 12k to each family member. You could also gift 40k directly with the only impact being a reduction in the lifetime exclusion for estate tax purposes (ie the excess would end up back in the gross estate) but you've said no estate problem.

The loan w/ gifted interest would work as well, but is overly complex for the scenario presented.

The date that the transfer takes place controls, a backdated check won't survive audit.

I would second the advice concerning medical costs, this strategy is effective only as a gifting mechanism (or estate reduction) but NOT to reduce estate for Medicare or asset protection.

[Craig 930 RS]

Yup, break it into 12k increments to different people and avoid all taxes.

Ask me how I know ;-)