Law sets annual, lifetime limits for tax-exempt gift-giving
The information in this column is intended to provide a general understanding of the law, not as legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.
Q: I am the beneficiary of one of my elderly sisters’ $100,000 annuity. Can I accept the full amount and immediately give $25,000 to each of my three sons without a tax consequence to myself or the sons? Or must I pay tax on the full amount and then gift it?
A: Yes, you can most likely elect to receive the entire $100,000 benefit at one time, but you will owe income taxes. Exactly how much tax you will owe depends on many factors.
The easiest way for you to figure out how much of the benefit will be taxed to you as income, as well as what your options are with regard to the receipt of the funds, is to contact the company that sold your sister the annuity.
You will then be free to give away any amounts you net after the income taxes have been paid. In 2018, you can give each of your sons $15,000 without any gift tax consequences. If you are married, you and your spouse can give each of them a combined $30,000 (and this is true even though the annuity was payable to you and is your separate property).
If you are not married, but your sons are married, you can give each married son $15,000 and his spouse the other $10,000.
If neither you nor one of your sons is married, you can give that son $15,000 this year, and $10,000 next year.
If you give more than the $15,000 annual limit, the only consequence is that you must file a gift tax return (which will incur preparation fees if you hire an accountant), but you won’t owe any gift taxes unless you’ve already given away more than $11.18 million in taxable gifts. Under the new tax laws, this is the amount that can be given away tax free by each person over his or her lifetime, above and beyond the $15,000 annual gift tax exclusion.
Q: My neighbor left her house to my daughter in a “Revocable Transfer on Death Deed”. I am the executor of my neighbor’s will. The lawyer who prepared these documents says her will must be probated. I thought the deed was supposed to avoid probate. What could be the reason for this?
A: There are several possible explanations for why the will must be probated.
First, your neighbor might have owned other assets that pass under the will. For instance, her estate might also contain a bank or brokerage account that was solely in her name. She might have owned other real estate, or life insurance might have been payable to her estate.
Second, the Revocable Transfer on Death Deed might have been prepared incorrectly, or it might never have been recorded in the proper county. It might also have been revoked. If so, the home would pass under your neighbor’s will.