gift tax exclusion

What is the name of your state (only U.S. law)? NY

I understand that if Mom gives me > $12k per year, it goes against the $3.5 milllion lifetime exclusion and attaches to future estate inheritance amount.

Here's my question. I will be inheriting a significant amount of money from Mom's estate.. This inheritance will be split evenly with my 1 sibling. If Mom gifts me say $300k, for example, for home purchase, does that reduce the amt my sibling can inherit tax free? Ie, does it go against the total estate, or just against my share? I guess the crux of it is, if the unified credit is a concept attached to the estate and therefore, the giver, then the more I received during my lifetime as a gift, the less my Sister will be able to inherit tax free..

is that about the size of it?

Beginning in 2009, it is $13,000 annually.

...and attaches to future estate inheritance amount.

Here's my question. I will be inheriting a significant amount of money from Mom's estate.. This inheritance will be split evenly with my 1 sibling. If Mom gifts me say $300k, for example, for home purchase, does that reduce the amt my sibling can inherit tax free? Ie, does it go against the total estate, or just against my share? I guess the crux of it is, if the unified credit is a concept attached to the estate and therefore, the giver, then the more I received during my lifetime as a gift, the less my Sister will be able to inherit tax free..

is that about the size of it?

Click to expand...

No, you are conflating two completely separate issues. The gift tax matter is just that - it is a tax question. It has no bearing on the eventual distribution of your Mom's estate unless Mom proactively revises her will/estate plan to take the gift to you into account.

(Although, the way you worded that question, I guess the answer would be "Yes, it will reduce the inheritance of your sister absent some action by your Mom. There will be $300K less in the estate for you two to split evenly.")

anteater said:

Beginning in 2009, it is $13,000 annually.



No, you are conflating two completely separate issues. The gift tax matter is just that - it is a tax question. It has no bearing on the eventual distribution of your Mom's estate unless Mom proactively revises her will/estate plan to take the gift to you into account.

(Although, the way you worded that question, I guess the answer would be "Yes, it will reduce the inheritance of your sister absent some action by your Mom. There will be $300K less in the estate for you two to split evenly.")

Click to expand...

If I take gifts in excess of $12k per year, doesnt that accumulated over-gifting amounts finally get dealt with at time of inheritance. Doesnt the Unified Credit concept deal with just this issue? Isnt the very reason the credit is 'Unified' is to address BOTH the inheritance tax, and the amount of gifts that exceeds the annual limit'? How is this 'conflating two completely separate issues', when to me, they seem quite inextricably related? If i receive a $300k gift now, my understanding is that lessons the amount of estate I may receive tax free.. What im trying to determine is, if it also reduces the amount my sibling can receive tax free as well. In other words, the amount of the estate that passes heirs tax free gets reduced not just by the amount i take now, but also in terms of the tax free-edness of the amount of the state.. AT least thats what Im trying to find out.

boostm3 said:

If I take gifts in excess of $12k per year, doesnt that accumulated over-gifting amounts finally get dealt with at time of inheritance. Doesnt the Unified Credit concept deal with just this issue? How is it two totally different things?

Click to expand...

It is a matter relating to the estate tax.

It has absolutely nothing to do with the how your mother's estate is distributed.

anteater said:

It is a matter relating to the estate tax.

It has absolutely nothing to do with the how your mother's estate is distributed.

Click to expand...

If over-gifting from that estate is done, isnt there an impact as to how much of the estate passes on to heirs tax free?

boostm3 said:

If over-gifting from that estate is done, isnt there an impact as to how much of the estate passes on to heirs tax free?

Click to expand...

Yes, if the estate is large enough to be subject to the estate tax. Any gifts that are reportable reduce the amount of the estate tax exclusion. For example, if the estate tax exclusion is $3.5M when your mother passes away and she had made $300K of reportable gifts during her lifetime, the estate tax exclusion would be $3.2M. The value of the estate over that $3.2M would be subject to estate tax.

But..
1) The estate pays the tax, not the heirs.
2) Your original question seemed to be asking about the distribution of the estate. The IRS does not really care who the gifts were made to or how the estate is distributed. It only cares that the estate pays the tax if any tax is due.

anteater said:

Yes, if the estate is large enough to be subject to the estate tax. Any gifts that are reportable reduce the amount of the estate tax exclusion. For example, if the estate tax exclusion is $3.5M when your mother passes away and she had made $300K of reportable gifts during her lifetime, the estate tax exclusion would be $3.2M. The value of the estate over that $3.2M would be subject to estate tax.

But..
1) The estate pays the tax, not the heirs.
2) Your original question seemed to be asking about the distribution of the estate. The IRS does not really care who the gifts were made to or how the estate is distributed. It only cares that the estate pays the tax if any tax is due.

Click to expand...

Anteater, I must have mislead initially, and I apologize.. but now at least we're on the right track. Let me make sure i understand.. For 2009, the Unified credit amount grows to $1,455,800 which is the tax on the applicable exclusion amount of $3,500,000 . Does this mean that, if the inheritable estate in Mom's name at time of death is valued at $3 mil, then I could have used up to $500k in gifts paid by the estate, and the estate would still not be subject to estate tax? What confuses me is in the irs publication 950, it gives two different Unified credit amounts in the table: For gift tax, it lists $345,800 on $1 mil of gift giving; for Estate tax, it lists $1,455,800 on $3.5 mil.. Howare the two unified credit amounts actually applied, using my example of the $3 mil estate, and $.5 mil in lifetime reportable gifting? Thanks much.

You might say that what was once truly the "Unified Credit" is now the "Disunified Credit." The $1M lifetime reportable gift tax exclusion really only determines whether a gift tax needs to be paid immediately. Less than $1M in lifetime reportable gifts and the giftor does not need to pay the gift tax while they are living. More than $1M, then they will have to fork over some money while they are alive.

But, when the giftor passes away, it all comes together. We usually talk in terms of the estate tax exclusion being reduced by the amount of the reportable gifts. But you could also think of it this way. When the giftor passes away, the value of the reportable gifts are added back to the value of the giftor's actual estate value at death. That total is then compared to the estate tax exclusion amount, for example, $3.5M in 2009, to determine if the estate has an estate tax liability. (And, if any gift tax was actually paid during the giftor's lifetime, the amount of gift tax paid would be a credit against that liability.)

Therefore, in your example, with $500K in reportable gifts and a remaining estate valued at $3M at death and the estate tax exclusion at $3.5M, there would be no estate tax liability.

It would be the same (with the simplifying assumption that all else is equal) as if the reportable gifts were never made and the estate value at death were $3.5M.

anteater said:

You might say that what was once truly the "Unified Credit" is now the "Disunified Credit." The $1M lifetime reportable gift tax exclusion really only determines whether a gift tax needs to be paid immediately. Less than $1M in lifetime reportable gifts and the giftor does not need to pay the gift tax while they are living. More than $1M, then they will have to fork over some money while they are alive.

But, when the giftor passes away, it all comes together. We usually talk in terms of the estate tax exclusion being reduced by the amount of the reportable gifts. But you could also think of it this way. When the giftor passes away, the value of the reportable gifts are added back to the value of the giftor's actual estate value at death. That total is then compared to the estate tax exclusion amount, for example, $3.5M in 2009, to determine if the estate has an estate tax liability. (And, if any gift tax was actually paid during the giftor's lifetime, the amount of gift tax paid would be a credit against that liability.)

Therefore, in your example, with $500K in reportable gifts and a remaining estate valued at $3M at death and the estate tax exclusion at $3.5M, there would be no estate tax liability.

It would be the same (with the simplifying assumption that all else is equal) as if the reportable gifts were never made and the estate value at death were $3.5M.

Click to expand...

Just a super, well written response, and I really appreciate it.. If only the gov pub was as clearly written as this.. But then, its the gov we're talking about. Now, if only theyd let us in on whether or not the $3.5 mil estate tax exclusion would be carried forward after 2010, maybe we could actually plan effectively for a change! I know Obama said in his campaign that this was his intent, but you know what they say about the road to ruin being paved by good intentions, etc, etc.

Anteater, a followup question if you dont mind.. Adding to the above example, I am trustee of Dad's bypass trust. .He passed away in 2006, and had funded an A share and a B share. .Into the A share went the house. The B share was funded with a muni tax free bond fund, and a brokerage account with a major bank. I am trustee of this bypass trust.

The way I understand it, the A share passes on to my sister and myself after Mom dies.. And the B share gets comingled with Mom's estate, and the total amount plus any declared gifts paid out, is what is subject to estate tax, minus any exclusions in effect at the time.

So here's my question. Id like to know if funds were gifted out of the B share of the bypass trust, would that go against Mom's estate Unified credit just as if it came out of Mom's own assets? Im guessing that it does, since ultmately that same B share gets combined with her own assets to comprise her inheritable estate, but Im not sure.

Thanks for your advice.

when you have an a/b trust, one typically funds the a trust at the time of passing of the first spouse to die. usually, one does not go over the individual exclusion amount for the deceased spouse, so that there is no estate tax to be paid on the a-share.

the remaining b-share is typically owned outright by the surviving spouse. so all those assets are part of her estate, when she dies. and they will be included in her total wealth, and compared to the exclusion amount for her at the time of her death.

when funding the a and b trust shares, just remember - that you lose the step-up basis with the a trust. in other words, when the second spouse dies, you get the stepped-up basis on the assets in the b trust. but you keep the same basis on assets in the a trust. to put it more simply, the death of the second spouse has no effect on the basis of assets in the a-trust.

TrustUser said:

when you have an a/b trust, one typically funds the a trust at the time of passing of the first spouse to die. usually, one does not go over the individual exclusion amount for the deceased spouse, so that there is no estate tax to be paid on the a-share.

the remaining b-share is typically owned outright by the surviving spouse. so all those assets are part of her estate, when she dies. and they will be included in her total wealth, and compared to the exclusion amount for her at the time of her death.

when funding the a and b trust shares, just remember - that you lose the step-up basis with the a trust. in other words, when the second spouse dies, you get the stepped-up basis on the assets in the b trust. but you keep the same basis on assets in the a trust. to put it more simply, the death of the second spouse has no effect on the basis of assets in the a-trust.

Click to expand...

Yes. Thank you. As ive understood it, the house, which compises the A share was built around 1982. It was reappraised and revalued at the time of his death in 2006. .Since then, like most housing, it has gone down about 15% in value. At any rate, I understand that when I inherit and then sell, my basis is that at the time of Dad's passing.

Youve confirmed what I thought regarding the B trust, in that since its comingled with Mom's estate at time of her passing, any gifts taken from the B trust during her lifetime would be treated as if it were taken from her estate directly and would therefore go against HER estate's unified credit.

Heres one more related question. One of the assets in dad's A share is a brokerage acct. Gifting shares in this acct would trigger capital gains, even with the currently depressed market, as the acct was bought many years ago, and put into trust just a couple of years ago.. Question is, would the basis of the brokerage acct be that at the time it was placed into trust, that at his passing like the house, or would it be the time it was first purchased many years back? And, if capital gains are triggered through their gifting, what tax rate would be in effect? As we know, a 15% tax bracket or lower for individuals triggers a zero capital gains tax rate. The trust acct pays virtually no tax currently as I send any funds derived from interest and dividends left in the trust checking acct at the end of the year to mom, and is therefore empty at year's end.. Since the tax rate of the trust is basically zero, what would that impact be on the capital gains rate of stocks sold within the brokerage acct and gifted?

"Gifting shares in this acct would trigger capital gains"


Not true. You can have the brokerage house transfer stock from one account to the other brokerage account, thereby gifting that stock. Nothing is sold, there is no capital gains. The cost basis of that stock is the same, no matter which account it is in.

Now if you sell the stock to get cash, you have created a capital gain (or loss).

Kiawah said:

"Gifting shares in this acct would trigger capital gains"


Not true. You can have the brokerage house transfer stock from one account to the other brokerage account, thereby gifting that stock. Nothing is sold, there is no capital gains. The cost basis of that stock is the same, no matter which account it is in.

Now if you sell the stock to get cash, you have created a capital gain (or loss).

Click to expand...

Im afraid I must apologize. I misled in my post. Brokerage acct was the wrong name. ITs a multiple stock account held at a major international bank. This account is in the deceased's A share. Im speaking about selling stocks in this account, and talking about the captial gains issues involved.. The other account in this A share is a muni bond fund held by large Mutual fund company. Ok.. back to your regularly scheduled program, and the issues mentioned in my prior posts.

>>when you have an a/b trust, one typically funds the a trust at the time of passing of the first spouse to die. usually, one does not go over the individual exclusion amount for the deceased spouse, so that there is no estate tax to be paid on the a-share.<<

TrustUser, in my case, it was the house which comprises the B share, and that was worth the amount of the exclusion at the time of his death death.. Its the A share which holds equity assets of lesser value than the exclusion amount, which the trust doc says gets comingled with Mom's estate at time of her deaty.. The House comprising the B share comes directly to us, the children at her passing, so it sounds like the A and B shares were set up in reverse of your example.

Lastly, would it be possible to 'borrow' a sum from this A share, for a month or so, return the funds at that time to the same acct, and not trigger a capital gains tax?

boost - You are getting into matters that are beyond my comfort zone. And, while other regular repsonders here probably have the knowledgebase, I would guess that they are not going hazard answers without a complete review of all the relevant documents.

Obtain face-to-face advice from a professional who can review everything.