What Are the Tax Implications for Large Gifts?

Mary wants to know what the tax consequences are for the parent and child if the parent gives the child a large gift like $60,000.

QUESTION: Mary on Facebook wants to know what the tax consequences are for the parent and child if the parent gives the child a large gift like $60,000. Dave says there are no consequences for the child, but the parent could face a huge tax bill.

ANSWER: For the child, nothing. For the parent, it will qualify for gift tax, which will be approximately 55% or as much as $30,000 in taxes. It’s a stupid thing to do to just write a check and do that. Is there a way around that? Yes. There are two ways around that. One is you have in your federal estate tax law the ability to pass to heirs in an estate up to $2 million with no federal estate taxes. You can use some of that $2 million exemption while you’re alive. It’s called the Unified Estate Tax Credit. If you used up $100,000 of that, then you would not be able to pass $2 million. You’d be able to pass $1,900,000 because you gave away $100,000 during your lifetime. But you have to do paperwork and proper things with taxes to be able to do that and not just do it.

The government has this strange idea that you’re not allowed to do with your money what you want to do unless they get to tax it. You’ve got to follow the rules. You need to see an estate planning attorney and qualify this gift under the Unified Estate Tax Credit, or you don’t need to do the gift.

The other possibility is an individual is allowed to give another individual up to $13,000 in a year with no gift tax. If you are married and your parents are married, you can work that up to $52,000 a year by giving the gifts individually. Twenty-six thousand from each parent is $52,000. If there are four people involved, you can do four different checks and not get into gift tax up to $52,000 in a single calendar year. The other $8,000 would have to wait until the next calendar year to be able to do that. That’s actually the easiest way to do it.