Understanding Gift Taxes and Who Foots the Bill
I was approached by a good friend of mine last week who had a question on gift taxes. Her question was simple enough – who pays the tax on a gift? This friend, Mary, was concerned about the tax implication on a gift of $20,000 she received from her mother in 2012. Her fear was that she did not have enough documentation of the gift, nor did she set aside enough money to pay taxes on it.
I explained to Mary that the one who gives the gift (called the donor) is responsible for the tax. Due to the size of the gift, I told her that it was unlikely her mother would incur taxes on the transfer but that she must file a gift tax return for 2012. Any gift over $13,000 in 2012 (the annual gift tax exclusion for 2012) must be reported on a gift tax return. Taxes are due once the donor exceeds the lifetime gift tax exemption. For 2012, this amount is $5,120,000. So, once that $13,000 yearly exemption is permitted, only $7,000 of that gift will go towards the lifetime gift tax exemption. If you were to keep all financial gifts under the yearly exclusion, no portion of that money would go against your lifetime exemption.
It is important to keep in mind that these numbers have changed for 2013. The annual gift tax exclusion is $14,000 per person and the lifetime exemption is $5,250,000. These numbers can change every year so it is important to look at the current law before making any large transfers. It is also prudent to inform your accountant and attorney of any intended large transfers.
For more information on gift tax or other estate planning matters, contact our office today at 888.222.1328 for your free consultation.
What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down. The attorneys also help those in Arizona to apply for and receive Medicaid assistance and Veterans Benefits. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Contact us today at 888.222.1328 to schedule an appointment!