We’re in our 80s, and our daughter’s name is on our bank accounts. We tell her to take a large share of our annual RMDs — required minimum distributions — and anything else she needs. She isn’t greedy, and I encourage her to take more since we don’t need it. We’ve been doing this for several years. How does this affect the gift tax?
For tax purposes, you’ve given your daughter only what the IRS calls a “completed” gift when she actually takes money from your accounts. Your gift is the amount she withdraws. If your account has $5,000 but she takes only $100, for example, the gift is $100.
Gifts aren’t taxable to recipients. If gift taxes are due, they’re paid by the donor. But each taxpayer can each give $14,000 a year to an unlimited number of recipients without incurring a gift tax or having to file a gift tax return. So together, you and your wife can give your daughter $28,000 a year without gift tax consequences. You must file a gift tax return if you make taxable gifts — i.e., gifts that exceed the annual exclusion amount. But no tax is due yet, because in addition to the annual exclusion amounts, federal law lets each taxpayer make lifetime gifts of $5.45 million without incurring a gift tax.
However, at your death, taxable gifts are added back into your estate. For federal estate tax purposes, $1 million in lifetime taxable gifts adds $1 million to the value of your estate. New York State adds taxable gifts made only within three years of your death back into your estate, says Barry C. Picker, a Brooklyn tax accountant. “If you live longer than three years after making a gift, New York gets no tax on it.”
THE BOTTOM LINE You can be generous without incurring gift taxes.
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