Question

Sly is a widower and wants to make annual gifts of cash to each of his four children and six grandchildren. Required: How much can Sly transfer to his children and grandchildren this year if he makes the maximum gifts eligible for the annual exclusion? What is the amount of the total transfer if Sly is married and elects to gift splitting, assuming his spouse makes no other gifts?

Answer 1

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return is gift.

The gift tax is the responsibility of the person who gives a gift (i.e. the donor), and the amount of tax due is based on the value of their gift. The person who receives a gift (i.e. the donee) is generally not responsible for paying the gift tax. However, if the donor does not pay the gift tax, the donee may have to pay the tax instead

The gift tax and exclusion limit (below) apply whether you are making the gift to a complete stranger, a nephew, or your own children. The only person you can give a gift to that is exempt from the gift tax is your spouse. Gifts to your spouse qualify for the marital deduction.

You do not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year. Currently, the annual exclusion is $14,000 per recipient. In other words, you can give up to $14,000 to each of your children this year without having to pay any gift tax.

In the current scenario B & A, below

Sly can exclude $14,000 for each donee (four plus six is ten donees). Hence, he can exclude $140,000 of

gifts this year.

If Sly is married and makes gifts from community property or elects to gift split with his spouse, then $280,000 of gifts would be excluded this year (assuming the spouse didn’t make any gifts to these donees).