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Court of Wills, Estates & Probate

The following articles were written by former Probate Judge Merri Rudd.

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End Of Year Gifts

8:52 AM
Merri Rudd
Q: Is it too late to make cash gifts this year to family members to reduce the size of my estate? Can I specify what the recipients do with the gifts?

The Internal Revenue Service (IRS) allows you to make gifts of cash or other property worth $10,000 or less per year to as many people as you wish without tax consequences. This is called the "annual gift tax exclusion." Recipients of gifts can be children, other relatives, or anyone else.

To use this "annual gift tax exclusion," the total amount you gift to a person during the year should not exceed $10,000. A married couple can gift up to $20,000 per person per year.

The IRS does not consider these gifts to be income, so recipi-ents do not declare the gifts on their income tax return. You, the donor, do not file a gift tax return if the amount of each gift is $10,000 or less per person per year.

Gifts over $10,000 per person per year may be made without tax consequences if paid directly to persons who provide certain medical care or for tuition to qualified educational institutions.

If you gift more than $10,000 to anyone in a year, you should file a U.S. Gift Tax Return, IRS Form 709. Contributions to qualified charities do not incur gift tax, even if over $10,000. However, you cannot take an income tax deduction for the gift, unless it is to a qualified charity.

In 2002 the annual gift tax exclusion increases to $11,000 per person per year. Small increases may occur thereafter by $1,000 increments, although probably not annually.

Often people make gifts to reduce the amounts of their estates. In 2002 estates worth $1 million or less (per person) will not be subject to estate tax, so unless you are wealthy, gifting may be less desirable. This is because recipients of gifts do not receive a "stepped up basis" in value for non-cash gifts.

Once you give your assets to someone, the gifted assets are not part of your estate. You cannot retain any control over or place any conditions upon gifts you make.

Make sure gifts are transferred by December 31 in the year you make the gift. Checks must be paid by the bank (make allowances for holidays, postal and other delays) before the last day of the year to count as a gift in that year. If the check does not clear the bank by the last day of the year, the gift will count in the following year. To be safe, consider giving cashier's checks, money orders, or cash instead of personal checks toward the end of the year.

Thanks to attorney Tom Smidt II for his input on this column.

© 2001, Merri Rudd & Albuquerque Journal, All Rights Reserved

Appeared December 27, 2001 Albuquerque Journal, Business Outlook

Reprinted with permission


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