Gift tax Circumstances.

On Tuesday, February 4, 2014 5:38:19 PM UTC-8, Mic wrote: | Situation: | A single person wants to give as a gift, in 2014, via check to a married | sister's son who has a wife and two kids under 7 years. | ... | Are the two kids regarded as 'persons' by IRS? Is there an obscure | definition? | ... | Anything else that I have failed to consider?

Well, one thing about giving some of the funds to the kids is that the money would then be the kid's money and therefore not be available for the parents to use for their own purposes.* If the subsequent use of the money is different from that, then presumably the IRS could argue that the gift did not really go to the kids and thus disallow the exemption amount attributed to the kids.

• It is of course also possible that the rules in regard to children's assets is different in their country of residence. I have no idea how that might affect the answer. You would need to ask a lawyer for that.

Thanks for your response.

Would that not be a problem on the receiving end?

Any opinion if the kids are regarded as 'persons' in this context? Making a check out to a small child 'care of' dad (name).

mic

So the gift can be made to the parent as trustee for the child under the Uniform Gift to Minors Act. It may not prevent the parent from using the money inappropriately from a practical standpoint, but from a legal standpoint it will make such a parent liable to pay the child back if the money is used improperly.

Children are certainly persons for this purpose. Gifts under the exemption are made to children all the time, and it's never a problem unless the gift is made to an irrevocable trust that is not structured properly.

The safest way to show intent that would pass a tax audit, is to cut 4 checks each made out to the name of the specific individual. And yes a child is a person.

Additionally, you must also consider that if you give any other gift during the year to the individual (birthday present, anniversary present, christmas gift, etc.) you have exceeded the $14K allowance.

Thanks for the answer: Would this require any additional paperwork - other than writing on the check "child name care of dad name"? Only dad sign to cash check.

Do we know yet that the exclusion is $14,000 for 2014 tax year? mic

Good point. Would it make any difference if it is a bank check and NOT a personal check - for our IRS?

If you could squeeze it all on a check you could write, "George Smith as custodian under UTMA for James Smith."

As far as I am aware, it is unchanged from 2013.

There's no legal reason it should make a difference.

Great and if the amount is under the $14,000 exclusion then NONE of this needs to be disclosed to the IRS anywhere - correct?

mic

If you make gifts over the year to one person of no more than $14,000, then they normally do not have to be reported to the IRS.

When spouses collaborate on gifts, they can together gift double that amount. However the joint gift may need to be reported to the IRS.

Again, if you make a gift to an irrevocable trust that is not set up properly, that gift will not qualify for part of the $14,000 exemption, and must be reported no matter how small it ls.

I understand that one person making a gift to two or more, that may all have the same last name, and the 14,000 is not exceeded for any individual during the year - then no IRS reporting is required. Is this not correct?

I understand that putting the UTMA on the check per your previous post is unrelated to an 'irrevocable trust' above. Am I understanding correctly? I really do appreciate your efforts! Mic

Correct.

Yes, the UTMA is a revocable trust, and gifts to revocable trusts qualify for the annual exclusion.

Ok No my only remaining question is - does California have a gift tax?

If it does, then it is well hidden because I did extensive searching - including a 2014 Ca gov tax site.

Thanks all for your info. Mic

No, California has no gift and no estate tax.

If you look at the website that has California statutes, you will get your answer. In particular Revenue and Tax Code ?13301 says.

"Neither the state nor any political subdivision of the state shall impose any gift, inheritance, succession, legacy, income, or estate tax, or any other tax, on gifts or on the estate or inheritance of any person or on or by reason of any transfer occurring by reason of a death."