Gift tax vs Estate 'gift' tax | TigerDroppings.com

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Fat Man
LSU Fan
Covington, Atlanta, Winston-Salem
Member since Jan 2006
6417 posts

Gift tax vs Estate 'gift' tax


Gifts are tax free up to $14,000 pp.

Estates are tax free inherited up to 5,250,000 .. and can be gifted while still living:

quote:

The practical application of this is that individuals can make gifts during life or transfers at death of up to this new higher limit and pay no federal estate tax.


WSJ

So my question: How does the IRS distinguish between a "gift" tax and a transfer of Estate? I'm assuming a tax form eg 706?

Be gentle. I studied science, not business.







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Tiger n Miami AU83
Auburn Fan
Miami
Member since Oct 2007
34647 posts

re: Gift tax vs Estate 'gift' tax


Short answer is you have to report the gifts each year over a de minimus amount.

The amount you report that is tax free (under the annual gift tax free limit) reduces the amount of the eventual estate tax exclusion.

EX.

Make $10,000 tax free gift. Estate exclusion is up to $1,000,000 estate. After gift remaining exclusion is $990,000.






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Bear Is Dead
LSU Fan
Monroe
Member since Nov 2007
3600 posts

re: Gift tax vs Estate 'gift' tax


quote:

Make $10,000 tax free gift. Estate exclusion is up to $1,000,000 estate. After gift remaining exclusion is $990,000.

Nah brah. Annual exclusion doesn't lower the lifetime exemption.






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Bear Is Dead
LSU Fan
Monroe
Member since Nov 2007
3600 posts

re: Gift tax vs Estate 'gift' tax


quote:

Gifts are tax free up to $14,000 pp.

You can give this every year to as many chinamen as there are in china.

quote:

Estates are tax free inherited up to 5,250,000 .. and can be gifted while still living:

This will still be intact even with step 1 listed above. (unless congress changes the lifetime exemption.)






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Janky
LSU Fan
Team Primo
Member since Jun 2011
7879 posts
 Online 

re: Gift tax vs Estate 'gift' tax


quote:

Nah brah. Annual exclusion doesn't lower the lifetime exemption.


This is correct. Up to the gifting limit does not lower the lifetime exemption. If you gift over the limit you will not have to pay gift taxes but it will lower the exemption. At least this is the way I understand it.






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Layabout
UNO Fan
Baton Rouge
Member since Jul 2011
6734 posts

re: Gift tax vs Estate 'gift' tax


quote:

How does the IRS distinguish between a "gift" tax and a transfer of Estate?


Uh, you're still alive when you make a gift?






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Lsut81
USA Fan
Member since Jun 2005
64559 posts

re: Gift tax vs Estate 'gift' tax


quote:

Estates are tax free inherited up to 5,250,000 .. and can be gifted while still living:


I did not know this

So, say your grandfather has already declared you are the beneficiary of his estate... While he is living, he can give you $100k and it is tax exempt?

Basically, you are not limited to the 14k under the gift tax since it technically will be yours tax free upon his death






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Bear Is Dead
LSU Fan
Monroe
Member since Nov 2007
3600 posts

re: Gift tax vs Estate 'gift' tax


quote:

So, say your grandfather has already declared you are the beneficiary of his estate... While he is living, he can give you $100k and it is tax exempt? Basically, you are not limited to the 14k under the gift tax since it technically will be yours tax free upon his death

Not exactly. He could start gifting you $14k each year and it wouldn't lower the $5.25 mil. Or he could just go ahead and gift it all, which would go against the $5.25 mil. Its tax exempt, would lower his lifetime exemption.






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Lsut81
USA Fan
Member since Jun 2005
64559 posts

re: Gift tax vs Estate 'gift' tax


quote:

He could start gifting you $14k each year and it wouldn't lower the $5.25 mil. Or he could just go ahead and gift it all, which would go against the $5.25 mil.



So its either gift it all or gift 14k... There's no in between if it is part of the estate?

Follow-up, how could he "Gift it all" if he is still living? He would still need access to some of it while he was alive.






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LSUchuck
LSU Fan
Member since Dec 2004
1444 posts

re: Gift tax vs Estate 'gift' tax


No...You can gift up to $14,000 per year per parent. Anything over that lowers the lifetime exclusion.

The gifter is responsible for any taxes over the amount.




This post was edited on 10/7 at 10:17 am


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Lsut81
USA Fan
Member since Jun 2005
64559 posts

re: Gift tax vs Estate 'gift' tax


quote:

No...You can gift up to $14,000 per year per parent. Anything over that lowers your lifetime exclusion.

Say your dad gifted you $39,000 in 2013. That lowers your limit by $25,000(39,000-14,000)...leaving you with $5 mil left of the estate exclusion.



Ok, I misunderstood.... I thought no matter what you were limited to the 14k a year tax free.

As you are saying, whomever can gift you whatever amount they want in a year and its tax free, but anything over the $14k, is subtracted from the lifetime estate limit of 5mil?







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Bear Is Dead
LSU Fan
Monroe
Member since Nov 2007
3600 posts

re: Gift tax vs Estate 'gift' tax


quote:

As you are saying, whomever can gift you whatever amount they want in a year and its tax free, but anything over the $14k, is subtracted from the lifetime estate limit of 5mil?

correct






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LSUchuck
LSU Fan
Member since Dec 2004
1444 posts

re: Gift tax vs Estate 'gift' tax


Your mom and dad can EACH give you $14,000 per year so $28,000 total.







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Lsut81
USA Fan
Member since Jun 2005
64559 posts

re: Gift tax vs Estate 'gift' tax


quote:

correct


So if your Grandfather has an estate worth 500k and this year he gave you 100k...

The 100k would be tax free
86k would be deducted from the lifetime limit
So your lifetime limit would now be $5,414,000
But it wouldn't matter because his estate isn't worth that much (unless he hit the lottery)

Just trying to wrap my head around it.






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Janky
LSU Fan
Team Primo
Member since Jun 2011
7879 posts
 Online 

re: Gift tax vs Estate 'gift' tax


quote:

So if your Grandfather has an estate worth 500k and this year he gave you 100k...

The 100k would be tax free
86k would be deducted from the lifetime limit
So your lifetime limit would now be $5,414,000
But it wouldn't matter because his estate isn't worth that much (unless he hit the lottery)

Just trying to wrap my head around it


yes.






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Fat Man
LSU Fan
Covington, Atlanta, Winston-Salem
Member since Jan 2006
6417 posts

re: Gift tax vs Estate 'gift' tax


So, to sum up: Grandpa has an estate worth $300,000. Grandpa can gift the entire $300,000 to grandchild as an estate gift tax free.

I assume grandchild reports gift on tax return.

Looks like form 709

IRS 709






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Janky
LSU Fan
Team Primo
Member since Jun 2011
7879 posts
 Online 

re: Gift tax vs Estate 'gift' tax


quote:


So, to sum up: Grandpa has an estate worth $300,000. Grandpa can gift the entire $300,000 to grandchild as an estate gift tax free.

I assume grandchild reports gift on tax return.

Looks like form 709

IRS 709


However, if grandpa dies within 3 years (i think that is the length) the money is pulled back in to his estate. There really isn't a huge reason why a $300,000 estate would be gifted though as ther ewould not be any estate taxes owed.



This post was edited on 10/7 at 12:59 pm


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Fat Man
LSU Fan
Covington, Atlanta, Winston-Salem
Member since Jan 2006
6417 posts

re: Gift tax vs Estate 'gift' tax


quote:

There really isn't a huge reason why a $300,000 estate would be gifted


From a tax point, you're correct. However, Grandpa goes into a long-term care facility, $6,000 / mo. for 4 years. Estate is wiped out; Medicare takes over payments for grandpa for the same exact care he was receiving previously.

Grandchild gets 0.

However, if grandpa 'breaks' the estate by gifting the $300k, Medicare picks up the ltcf costs (after the 3 years, as you pointed out).

It's a late-life healthcare costs play, not a tax maneuver.

Currently, seniors with moderate estates (100k to several hundred K) are getting their Estates wiped out by Nursing homes' costs.






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Janky
LSU Fan
Team Primo
Member since Jun 2011
7879 posts
 Online 

re: Gift tax vs Estate 'gift' tax


Yes, I agree with this. However, the OP was regarding taxes. Also, if you gift it out and grandpa needs LTC within the first 5 years there will be a look back period in which no LTC payments for grandpa will be made.





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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
15312 posts

re: Gift tax vs Estate 'gift' tax


If you look at the Form 709 you will see that there is this thing called the Generation-Skipping Transfer Tax, or GST for short. Transfers from grandparents to grandchildren have their own complications. Our government is very thorough in its desire to tax the wealth of its citizens at every opportunity. Wouldn't want people to think they should be able keep the government from getting its share as often as possible.





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