Life is unpredictable and sometimes you can be blindsided with a large sum of money that comes to you. Nothing can be more heartbreaking than coming into money as a result from the death of a loved one. On the other hand you could be thinking of giving a large gift of money to a friend or relative and need to know the rules of what is the taxable limit. In the event that you are left with a sum of money from a loved one who has died or you are looking to give a loved one a large monetary gift there are some things you should know.
For example there are very strict rules on gifting and the maximum amounts individual and married taxpayers are allowed to give per year. Generally speaking the limit for an individual to gift is $13000 per year per gift while the limit is $26000 for married couples per year per gift. Gifts can be given each year but can’t exceed this annual limit without potentially paying taxes on the gift or estate. For gifts amounting to more than the annual exclusion limit the Gift Tax Return or Form 709 must be filed.
Another important rule to note is that the basic exclusion amount for gifts made and the estates of decedents who died in the calendar year of 2012 is $5120000 compared to only $5000000 in the calendar year of 2011. If you’ve worked hard to build a legacy for your family do not do them a disservice without knowing these exclusion limits. The last thing you would ever want is to have your children’s inheritance eaten away by taxes. Keep in mind the life time exclusion resets in 2013 to $1 million. Take advantage of the planning opportunities before the exclusion is significantly decreased.
Be aware that it is not the duty of the person getting the gift to file the Gift Tax Return if the annual exclusion exceeds the limit it is the responsibility of the person giving the gift to file the return. To avoid paying hefty fines or to avoid any confusion make sure the person giving the gift knows they are responsible for filing the form to the IRS and paying any fees or taxes.
Giving the gift of financial security can be both fulfilling and confusing when trying to navigate the murky waters of gift and estate taxes. Make sure you understand the basic exclusion amounts and speak with your financial advisor to ensure the financial future of your family.