Christmas, Birthdays, Mother’s Day, Father’s Day and all the other “days” in-between, are good reasons to give a loved one a gift.  And many times, these gifts are in the form of money; whether $20, $200 or $2,000, these gifts are pretty “simple” and there is no real need to consult with your attorney or CPA on making these gifts.  The IRS allows that the cumulative gifts from one person to another, in a calendar year, do not have to be reported, so long as they stay under $14,000.

But keep in mind what a gift is.  Webster’s defines a gift as “something voluntarily transferred by one person to another without compensation.”  This means there is no anticipation for anything in return.

But in the realm of family, the line between gifts and loans start to blur.  If you, as the giver, expect to get the money back (even if it is without interest), it is not a gift.  It is a loan!

And if you look back to when you closed on your house, and think about all of the papers you had to sign, you would realize that the vast majority of them are to secure the loan that the bank gave you.  Loans need to be documented!

In our practice, we see undocumented loans tear families apart.  Siblings think that the money dad gave was a loan, and needs to be paid back, while the receiver felt it was a gift.  And without the proper documentation, the issue may be resolved in a court of law, but the relationship will be shattered forever.

And without the proper documentation, there may be inadvertent income tax consequences. Even if the unpaid balance is set to be “forgiven”, improper drafting can cause an income tax to the beneficiary.

Keep making your gifts to your loved ones.  But if your mind starts to wander into any form of “pay back”, make an appointment to see how that transaction needs to be documented and made to be a part of your estate plan.

Contributed by MH Albuquerque, Santa Fe and Las Cruces Estate Planning Attorney, James P. Plitz.

About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.