My mother-in-law just wrote out a 6-figure jobbie to her daughter to help in buying a house. When does Mom-in-law have to pay the gift tax on that? Does she have the choice of putting it off until her death, and have the tax-free amount that passes to her heirs be decreased, or does she have to calculate it for this tax year? And how the heck would the IRS have any way of tracing said gift after say, 30 years, if Mom-in-law should live that long(and she is young enough to)? If she can put it off until the estate settling, it seems foolish to pay any gift tax now, what with the uncertain nature of the estate tax in general. Have I got this right?
Thanks, kniz. Nice link.
But, how does that Uinified Estate and Gift tax thingie work? It says we get a credit of a couple of hundred thousand bucks to use up before tax is due. So if Mom-in-law’s gift is less than, say, $200,000, can she put off paying the tax until the IRS comes after her estate after she dies?
If she gives it as a straight out gift now, there will be tax due for the current period. A gift of a $100,000 would result in a gift tax to the giver of over $20,000.
There are other ways to structure the deal to avoid or minimize the gift tax. In this case, the primary method would be to give a straight out gift of $11,000 for the current year (this is the new limit). The rest could be given as an unsecured loan at a market interest rate. The giver would then forgive the interest and principal on an annual basis up to the gift tax limit. You would recast the givers will to forgive the entire debt upon her death.
This could be a problem if the rest of the purchase price was financed and the lender required a gift letter for the entire amount.
With the amounts involved, it would be best for the parties to consult with a CPA or in this case with a tax attorney.
Barker beat me to it, but I echo his statements.
There’s enough involved that it’s worthwhile paying a tax-specialist to analyze for you. By structuring part as a gift and part as a loan, you can probably avoid tax.
By the way, if you can structure it so that each year, the mother makes a “gift” of $10,000 against the loan, you probably could wind up with no tax at all (basically, making a $10,000 gift each year for ten years.)
There’s lots of games that can be played in this situation, depending on their particular circumstances. Get solid advice.
Thanks for advice.
What seems so odd here is that when you read articles on the estate and gift tax, there are always these portentious pronouncements of being careful about gift-giving, when it seems like child’s play to simply say it’s a loan. Whoever would ever pay the gift tax, unless you’re talking millions, when it seems so simple to get around? Why, then, do people actually give that $11,000 away each year to their kids or whomever, when they could just “structure” it as an imaginary “loan” and give away whatever they wanted to?
It is not just a matter of stating that it is a loan. The outline presented here is very general. You really need to comply with certain regulatory requirements.
This is a situation where you will really require a tax professional. They will walk you through the steps, document the transaction and ensure that the paperwork required is completed.
Believe me, alot can go wrong in structuring this type of transaction.
barker, I understand you completely. But I know what my mother-in-law is going to do–nothing. She’ll count on the IRS’s not being particularly interested in what she does with her money, on which, she emphasizes, “I’ve already paid taxes once!” To her, to do that paperwork is the same things as saying, “Gee, I feel so good today I think I’ll do some paperwork to see what huge amount I can come up with so I can send a check in to that nice old IRS bureaucracy so the poor little darlings won’t have to chase me down and do it all themselves.”
By the way, what is an example of the paperwork that she should do should she structure it as a “loan”?