Can my minor children receive a gift from their great aunt that is excluded from the gift tax?
May 4, 2008 4:08 PM Subscribe
Can my great aunt make a $12,000 gift to me, my wife, and each of our two kids (for $48,000 total) without incurring the gift tax?
My (very generous) great aunt would like to give gifts to various extended family members but wants to be careful with the gift tax. From my research online, it seems beyond a doubt that she can give up to $12,000 per donee per year without triggering any gift tax or any obligation to report the gifts to the IRS.
The one question that I cannot find a straight answer on is whether she can give $12,000 to each of my 2 minor children and have that count separately from her gifts to me and to my wife. It seems to me that the answer is yes - I cannot find anywhere that the answer is no - but confirmation of this specific fact situation has eluded me.
If it matters, my family will use the combined money, including the kids' portion, immediately; it will not go into trust or into an account for when the kids turn older. Instead, we will use the money to fund improvements on our house that we have been deferring because we couldn't afford it. So when the money came in, I would sign my check for myself and sign the kids' checks on their behalf, deposit the money into our family's checking account, and then hand it over to a contractor.
Thanks for whatever help you can offer. I acknowledge that I should consult an independent professional and that if you are a lawyer or accountant you are not mine and you are not offering advice.
My (very generous) great aunt would like to give gifts to various extended family members but wants to be careful with the gift tax. From my research online, it seems beyond a doubt that she can give up to $12,000 per donee per year without triggering any gift tax or any obligation to report the gifts to the IRS.
The one question that I cannot find a straight answer on is whether she can give $12,000 to each of my 2 minor children and have that count separately from her gifts to me and to my wife. It seems to me that the answer is yes - I cannot find anywhere that the answer is no - but confirmation of this specific fact situation has eluded me.
If it matters, my family will use the combined money, including the kids' portion, immediately; it will not go into trust or into an account for when the kids turn older. Instead, we will use the money to fund improvements on our house that we have been deferring because we couldn't afford it. So when the money came in, I would sign my check for myself and sign the kids' checks on their behalf, deposit the money into our family's checking account, and then hand it over to a contractor.
Thanks for whatever help you can offer. I acknowledge that I should consult an independent professional and that if you are a lawyer or accountant you are not mine and you are not offering advice.
Err, doesn't the exception only apply to parents or grandparents?
posted by meta_eli at 4:32 PM on May 4, 2008
posted by meta_eli at 4:32 PM on May 4, 2008
No, it is not limited to parents or grandparents. You can give money to anybody under the exclusion.
posted by phoenixy at 4:45 PM on May 4, 2008
posted by phoenixy at 4:45 PM on May 4, 2008
Any person can give $12,000 each year to any other person without incurring any gift taxes. No relationship, familial or otherwise, is necessary between them. As I understand it, you could give $12,000 to every person in America every year and the IRS wouldn't charge you or the recipients a dime in gift taxes.
posted by decathecting at 4:55 PM on May 4, 2008
posted by decathecting at 4:55 PM on May 4, 2008
I think it's a bad idea. What you're describing isn't really a gift to your children, it's a gift to you. In general, if you want to gift to a minor, the gift must be put in a Trust so they cannot access it until they reach a certain age. I don't think the IRS would look kindly on such a transaction.
You're better off just getting your great aunt to loan you the money that you would have her give to the kids. Then when 2009 rolls around, she can forgive $24,000 of the debt as a gift, and you'll be done. She may have to pay taxes on the imputed interest on such a loan, so you should look into that, if you go down that road, but that's a lot better than being audited.
Note: Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice in this communication, including any attachments or enclosures, was not intended or written to be used, and it cannot be used, by any person or entity for the purpose of avoiding penalties imposed under the Internal Revenue Code.
posted by fengshui at 5:15 PM on May 4, 2008
You're better off just getting your great aunt to loan you the money that you would have her give to the kids. Then when 2009 rolls around, she can forgive $24,000 of the debt as a gift, and you'll be done. She may have to pay taxes on the imputed interest on such a loan, so you should look into that, if you go down that road, but that's a lot better than being audited.
Note: Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice in this communication, including any attachments or enclosures, was not intended or written to be used, and it cannot be used, by any person or entity for the purpose of avoiding penalties imposed under the Internal Revenue Code.
posted by fengshui at 5:15 PM on May 4, 2008
Response by poster: Thanks for the answers so far. phoenixy and decathecting, I am right with you on "a person can give $12K to as many people as they want," but my thought was along the lines f fengshui's opinion that it "isn't really a gift to your children, it's a gift to you." I guess the real question is "is an outright gift to a minor imputed to the minor's guardian for purposes of the gift tax?"
posted by Duluth?! I Hardly Know Her! at 5:21 PM on May 4, 2008
posted by Duluth?! I Hardly Know Her! at 5:21 PM on May 4, 2008
There really isn't even a gift tax, actually. If someone gives you more than $12,000 you only need to report that the IRS so that eventually it is used in computing the size of the giver's estate when they die. If your great aunt's estate is not terribly big and thus not subject to the so-called "death tax" anyway this really is something you need never worry about. I'm too lazy to look up the details right now but this is the sort of tax thing that people make much too big a deal about.
posted by thomas144 at 5:50 PM on May 4, 2008
posted by thomas144 at 5:50 PM on May 4, 2008
The link from Fidelity I posted above strongly implies that you can give a gift to minors. So does this. And I did a lot of research on this for work last year and didn't find anything that indicates that you can't. Of course you can also have your aunt give the money under the UTMA (which does fall under the gift tax exclusion).
But y'know there's enough money at stake that you might want to ask a Genuine Tax Professional or the IRS (1-800-829-1040).
posted by phoenixy at 5:59 PM on May 4, 2008
But y'know there's enough money at stake that you might want to ask a Genuine Tax Professional or the IRS (1-800-829-1040).
posted by phoenixy at 5:59 PM on May 4, 2008
I think that if it is a gift to the children, it needs to be used for their benefit. I won't try to guess if using the money to improve the home that the children are living in qualifies as benefiting the kids.
By the way, setting up a bank account under the Uniform Gifts To Minors (UGTMA) is extremely easy - in my experience it is the default at the banks we have used. What happens is that your child is the beneficiary, you are the custodian, you sign all checks etc but any interest is reported under the child' social security number. The child gets control of the account when they come of age (18, I thought although one of the links above suggest it might be 21).
posted by metahawk at 6:39 PM on May 4, 2008
By the way, setting up a bank account under the Uniform Gifts To Minors (UGTMA) is extremely easy - in my experience it is the default at the banks we have used. What happens is that your child is the beneficiary, you are the custodian, you sign all checks etc but any interest is reported under the child' social security number. The child gets control of the account when they come of age (18, I thought although one of the links above suggest it might be 21).
posted by metahawk at 6:39 PM on May 4, 2008
There really isn't even a gift tax, actually.
Of course there is. It's just that most people don't give enough to be hit with it.
OP: I don't think this would even pass the laugh test. Obviously it's just a way to get around gift tax laws. Would the IRS make a stink about it? I have no idea. But you should talk to a tax attorney if you are concerned.
That said, you're probably worrying for no reason. Unless your great aunt is planning on giving (or at least reporting to the IRS) gifts worth at least $1,000,000 in her lifetime she doesn't owe any taxes even if she just gave you $50,000 in one big lump. Money over $12,000 isn't subject to gift tax; it is subject to being taken against the $1,000,000 lifetime exemption from the gift tax. Until she gives more than $1,000,000 (less the yearly $12,000 per person exemption) she doesn't owe any taxes anyway.
So unless she has reported gifts of more than $12,000 per person per year to the IRS in the past she could give you a giant check for $1,000,000 and still not owe any taxes on it. Of course she'd have used up $988,000 of her million dollar exemption in one swoop, but you get the idea.
Bottom line: I think you're worrying needlessly unless your great aunt is very rich and planning on being very, very generous to the tune of $1,000,000 in chunks greater than $12,000 per year per person.
posted by Justinian at 7:16 PM on May 4, 2008 [1 favorite]
Of course there is. It's just that most people don't give enough to be hit with it.
OP: I don't think this would even pass the laugh test. Obviously it's just a way to get around gift tax laws. Would the IRS make a stink about it? I have no idea. But you should talk to a tax attorney if you are concerned.
That said, you're probably worrying for no reason. Unless your great aunt is planning on giving (or at least reporting to the IRS) gifts worth at least $1,000,000 in her lifetime she doesn't owe any taxes even if she just gave you $50,000 in one big lump. Money over $12,000 isn't subject to gift tax; it is subject to being taken against the $1,000,000 lifetime exemption from the gift tax. Until she gives more than $1,000,000 (less the yearly $12,000 per person exemption) she doesn't owe any taxes anyway.
So unless she has reported gifts of more than $12,000 per person per year to the IRS in the past she could give you a giant check for $1,000,000 and still not owe any taxes on it. Of course she'd have used up $988,000 of her million dollar exemption in one swoop, but you get the idea.
Bottom line: I think you're worrying needlessly unless your great aunt is very rich and planning on being very, very generous to the tune of $1,000,000 in chunks greater than $12,000 per year per person.
posted by Justinian at 7:16 PM on May 4, 2008 [1 favorite]
Justinian is correct about using the gift tax exemption. However, the reality of using that exemption isn't pretty. If you use any of your gift tax exemption, you have to file a gift tax return telling the IRS that you did. However, once you submit a single gift tax return stating you used some portion of the exemption, you have to do so every year for the rest of your life, even if you don't use any more of your exemption. (In essence, the IRS makes you track your exemption until you die)
posted by fengshui at 4:14 PM on May 5, 2008
posted by fengshui at 4:14 PM on May 5, 2008
This thread is closed to new comments.
posted by phoenixy at 4:15 PM on May 4, 2008