Documenting gift tax exclusions

[donheff]

Does anyone know if it is important that gifts to children and grandkids be documented to insure that IRS can’t claim they exceeded the exclusion? For example can I transfer $96,000 to my daughter and just tell her that it is from DW and me for her, her husband, and her daughter? Do I need to document the intent? If so, is it sufficient to keep a record with your estate and tax documents.

 

[Dash man]

When I transfer gifts it’s from a joint account into a joint account, so all four names are listed in the transfer. I believe the child’s name should be on the check or account transferred into.

 

[meierlde]

Does anyone know if it is important that gifts to children and grandkids be documented to insure that IRS can’t claim they exceeded the exclusion? For example can I transfer $96,000 to my daughter and just tell her that it is from DW and me for her, her husband, and her daughter? Do I need to document the intent? If so, is it sufficient to keep a record with your estate and tax documents.

Absolutly best way would be to for the daughter create a uniform gifts to minors account, then write 3 checks each from your account. A check will provide a permanent record, and the cost of 6 checks will be less than the cost of 6 wire transfers. Or if your granddaughter is young enogh a 529 might work better as returns until the money is withdrawn are not taxable.

 

[Dash man]

Absolutly best way would be to for the daughter create a uniform gifts to minors account, then write 3 checks each from your account. A check will provide a permanent record, and the cost of 6 checks will be less than the cost of 6 wire transfers. Or if your granddaughter is young enogh a 529 might work better as returns until the money is withdrawn are not taxable.

Yes, we use 529 plans and custodial accounts for our grandkids. We either write a check or ACH transfer funds to the adults.

 

[Exchme]

Just fill out the 709 forms for you and the spouse. They have a check box to indicate the gifts were from both of you equally and to list the donees. It's not difficult to fill out the form.

 

[donheff]

Just to clarify I am thinking about this for future gifting when DW starts RMDs. Due to estate tax changes in DC we may want to get more funds that we anticipated out of our estate before the first of us dies. Thus the consideration to maximize gifts. I would rather not send separate checks when I can just transfer funds to two accounts and advise the recipients what they are for as well as keep a record for my estate. I would anticipate that my kids might use the funds for the grandkids for their immediate support (e.g. room and board, school expenses, housing related for them) and then invest the difference they would otherwise have spent themselves. That seems like a valid approach, But I don't want to find out after I am dead that I blew it.

I would at a minimum keep individual transfers to $16 or below. I assume an aggregate check might trigger questions if IRS learned of it somehow. I would still hope that documentation of the transaction in the estate file would be sufficient to clear things up.

 

[donheff]

Just fill out the 709 forms for you and the spouse. They have a check box to indicate the gifts were from both of you equally and to list the donees. It's not difficult to fill out the form.

i wasn’t even aware that you could use the form to document excluded gifts Thanks I will look into that.

 

[jpeter1093]

I just looked into this as I was concerned about going over the limit. As it turns out there is a lifetime gift exclusion of 12M$; only difference is if you exceed the yearly threshold, you need to complete an extra form to keep track of the lifetime exclusion. Here's a link: https://smartasset.com/retirement/lifetime-gift-tax-exemption

 

[RunningBum]

After you and your wife have each given $16K to your kid and their spouse, I don't think you can give them another $16K each to use for their child's support. That looks like another gift to the parents, not the grandchild. It seems to me that the gift either has to go directly to the child or to an account (like a 529) for the benefit of the child. I just don't see how an extra pair of checks to the parents for $16K each would look like a gift to the grandchild to the IRS.

 

[donheff]

After you and your wife have each given $16K to your kid and their spouse, I don't think you can give them another $16K each to use for their child's support. That looks like another gift to the parents, not the grandchild. It seems to me that the gift either has to go directly to the child or to an account (like a 529) for the benefit of the child. I just don't see how an extra pair of checks to the parents for $16K each would look like a gift to the grandchild to the IRS.

Thats what I am trying to figure out and document, if acceptable. For example, I think it would be within the spirit of the exclusion to give my son a check to use for private school tuition. It seems wrong that I would need to write a check to the school but maybe that’s the case. I was thinking a memo on the check stating for Justin’s tuition would suffice

Does IRS track this kind of trivia?

 

[RunningBum]

Thats what I am trying to figure out and document, if acceptable. For example, I think it would be within the spirit of the exclusion to give my son a check to use for private school tuition. It seems wrong that I would need to write a check to the school but maybe that’s the case. I was thinking a memo on the check stating for Justin’s tuition would suffice

Does IRS track this kind of trivia?

To be clear, I'm not talking as an expert here.

Private school tuition would be a direct benefit. I would guess that the memo that the check is for tuition is good enough. Does that cover the $32K? Is it a boarding school, and that's what the room & board referred to? I thought you were talking about room and board at his parents' house, which, unless his parents are charging him, doesn't sound legit.

As far as your last question goes, anything like this where there isn't a financial custodian involved that reports transactions to the IRS (for things like stock sales/basis, IRA withdrawals, etc) relies mostly on taxpayer honesty. I doubt the IRS will delve into this unless your last name is Buffett, Gates or something like that but I'd try to imagine a case where they would audit me and ask why I didn't fill out a 709 with large checks like this being written to relatives in the tax year. If I can explain a direct benefit to the grand child, I'd be willing to make that case. If I'm only claiming his quality of life would be better by the parents having more money, I wouldn't relish that conversation with an auditor.

 

[ERD50]

Keep It Simple. Separate transactions kept under the limit, from each giver to each recipient. Don't combine anything.

Why make things hard on yourself in the off chance you get audited or questioned on something? Why try to recreate the situation? Separate everything speaks for itself.

I think it would be within the spirit of the exclusion to give my son a check to use for private school tuition. It seems wrong that I would need to write a check to the school but maybe that’s the case. I was thinking a memo on the check stating for Justin’s tuition would suffice ...

Forget about "the spirit", this is the IRS. Why invite problems?

Tuition can be paid directly to the school and it doesn't fall under the annual limits. If you just want to give Justin $16K and he uses it for tuition, that's fine. But if you want to go over the $16K, it must go direct to the school.


https://www.savingforcollege.com/article/tuition-gift-tax-exclusion

Grandparents do not have to file a gift tax form when money is paid directly to a college, even if the amount exceeds the $16,000 annual exclusion amount.

 

[SecondCor521]

In addition to the generic $16K annual exemption, and the education exemption, there is also a medical exemption:

"The gift tax does not apply to an amount you paid on behalf of an individual to a person or institution that provided medical care for the individual. The payment must be to the care provider. The medical care must meet the requirements of section 213(d) (definition of medical care for income tax deduction purposes). Medical care includes expenses incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, or for transportation primarily for and essential to medical care. Medical care also includes amounts paid for medical insurance on behalf of any individual."

The next paragraph says that this exemption only qualifies to the extent that they were out of pocket expenses; if the recipient is reimbursed by insurance or something like an HSA, then your payment of that expense becomes a gift.

-- Form 709 instructions, page 3, column 1 @ https://www.irs.gov/pub/irs-pdf/i709.pdf

And if you don't want to keep it in the family, you can give to political organizations or charities.

 

[Badger]

We give separate checks to each of the 2 grown children on birthdays and Christmas. So I figure that is my documentation.


Cheers!

 

[donheff]

Thanks for the suggestions. To date, we are fine since our gifting has been modest and doesn't rise to levels I worry about. But I am starting to think about larger gifting that may caution documentation. Charities will be easy since we can just write QCD checks from IRAs and not worry about $16K issues (no way the $100k annual limit will ever effect us). College tuition will be easy as well since we can write tuition checks without worrying about the $16k limit. But that is about ten years away.

In the past, I have made a few gifts within the limits to my daughter via transfer to her account. I documented them in a file but that may be inadequate. The grandkids gifts were all 529 contribution, so self documented. In the near term going forward, if we kick up family gifting, we will consider writing individual checks rather than transfers. Right now, I'm just adding guidance on this and other stuff to written instructions I am putting together for DW and the kids in case I kick. Writing those instruction has prompted me to rethink a number of things.

 

[Rickt]

We, my wife and I, are planning to gift our car (KBB value ~ $31,600) to our daughter. Do we need to document it for the purpose of IRS Gift tax?