Sr. Citizen now, very, and would appreciate any advice or
opinions on the following. Hate to admit it, but I miss
a lot of the nuances now.
Would like to give a gift to a Grandson of some $.
This would have nothing to do with the structuring of our Will.
a. What is the best way of structuring a $ gift now, so that there are
no tax implications, etc. ? If it is below the $ 14,000 magic number, is
the only tax implication what it would earn as interest, and being in
his name, and he having no income, would be negligible ?
Should a parent be on as Custodian, or...?
What are the tax implications and pros and cons of the various ways ?
b. Am I correct in assuming that if it were instead a gift of stock,
there would be no taxes on it until capital gains comes into play when
he would cash it in much later ? Having a zero income for quite a
while, any Div. or Cap Gains he would receive, I imagine, would incur
negligible tax, or zero tax, for him. True ?
The amount each year we could give him would be below any gift-tax level.
Any good Link(s) that explains all of this, and has suggested
approaches, in layman's terms ?
Much thanks, really appreciate any thoughts on,
If it's a completed gift (of "present interest" - meaning, theoretically, that the recipient has immediate use of the gift) then the threshold of $14,000 is the amount under which it may be considered within the annual exclusion from gift and estate taxes.
Depending on what the recipient does with it -- and the recipient's other income -- once he receives the gift, if he invests it, the earnings on that investment may be taxable as income to the recipient.
A child may have ownership of assets in a variety of ways - directly, in a custodial account (i.e., UTMA, UGMA), in a 529 account (potentially with a third party - perhaps the parent - as the official "owner" and with the child as beneficiary), in a joint account, etc.
It depends on the form of the gift. The obvious odd case is if the money goes into a 529, in which case there are no income taxes until the money is removed (and then only if it's not used for college/qualified expenses).
If it goes into an ordinary taxable account you may like to look up the rules for the "kiddie tax" - and see IRS Pub 929 for more information about the filing of a tax return for a dependent.
A gift to him of stock while you are alive (as opposed to him inheriting it when you die) means that the recipient generally keeps the original owner's cost basis. Until the stock is sold, there are no capital gains taxes due, but once sold, the capital gains will (usually) be based on *your* original cost basis. If the child has no other income, and the dividends, etc are low enough, there may be no taxes due at all (again, until the stock is sold - and even then if the gains are low enough). There is a standard deduction for dependents. Again, see IRS pub 929 as well as, possibly, the instructions for form 8615 (kiddie tax).
If you're going to be making these gifts for several years, you may want to consider either (a) 529 or (b) a trust. If the money goes into a taxable account owned by the child, whether directly or under UTMA, there are other implications (such as under UTMA, when the child reaches adulthood, the money may be used for anything whatsoever - if you intended it for college or something specific, it's out of your control). And if it's owned by the child, it may also have an impact on future college financial aid, too - it may well make more sense to give the gifts to the *parents* if you haven't already maxed out gifts to the parents under your annual exclusion.
As usual, the real answer which best handles your situation depends on a whole lot more information - your wealth and income, your children's wealth and income, your goals and intentions, etc. etc.
This article from Kips may help clarify some of the issues: