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Thursday, February 16, 2012
What is the Gift Tax?
The gift tax is a tax owed by the person making a gift, if the gift is not exempt. What makes it exempt? In 2012 any gift that is less than $13,000 avoids the gift tax. In other words, you can give any one person $13,000 this calendar year and you, the giftor, are not responsible for the tax. However, problems crop up when people make a gift without realizing they made a gift. Adding a child or partner's name to a deed or bank account is most likely considered a gift. And in most cases, that gift exceeds the annual exemption. Also, if a person dies and names only one of their children on the life insurance beneficiary form, and that one child does as mom or dad asked, and splits the money with his or her siblings, if each share is more than $13,000, a gift has likely occurred.
I always joke that it is cheaper to hire a lawyer for advice before taking action, than hiring one to clean up a mess. Before slapping people's names on deeds and accounts or filling out forms, it is wise to seek a professionals advice. Otherwise, the IRS may come knocking.