Gifting Limits 2012The holiday season is already behind us but that doesn’t mean you still can’t give the perfect gift.

In the financial world, the term gift has a whole new meaning as it pertains to estate planning. Many investors look to “gift” a portion of their estate to prevent having to pay a hefty estate tax down the road.

If you want the bottom line about the gifting tax here it is: If you make gifts to friends or family that is large enough, there is the possibility that you may owe the federal government some tax money.

Of course, you probably want more information about the current regulations of the federal gift tax. Keep reading and I’ll share a few of the major points for 2012 and beyond. Sorry if this isn’t as exciting as the Nutcracker.

First, and perhaps foremost for some, is the fact that you, as the giver, are not going to be taxed (unless you exceed the gift tax exemption). It is the recipients who will have to pay taxes. For taxes to figure into the equation at all, you will have to have given away in excess of $1 million in cash or other assets over the course of your life.

Plus, if you have a spouse they have their own separate exemption for the same amount. What this means is that most people will never have worry about the federal gift tax at all. (Currently $139,ooo up from $136,000 for 2011 tax year)

The gift tax also includes the annual gift tax exclusion. This exclusion allows you to gift up to $13,000 during a calendar year – without counting against that $1 million lifetime limit. Currently, the figure remains the same now for 2010 and there is every indication that this exclusion will remain the same for 2012. If you exceed $13,000 the difference is applied to your lifetime exemption.

Update: For 2012, the federal estate tax drops to 35%. The estate tax exemption rises all the way to $5.12 million. President Obama had earlier characterized these parameters as too generous, but he and Congressional Democrats ultimately accepted them.

Gift Splitting

Another important point is the capabilities of gift splitting. If the husband and wife are both living and one child (for example), the husband can gift $13,000 to the child and the wife can gift $13,000 to the same child and not affect your lifetime income limit. One other important point regarding gift splitting is that for it to work, each spouse must consent to splitting of the gift. This is done with the appropriate form which I’ll discuss next.

IRS Form 709 – Gift Tax Return

Another question that I get is: what paperwork do you have to file with the IRS if you do gift? The good news is that if you don’t exceed the $13,000 annual gifting amount, no paperwork is needed – how sweet is that! The two instances that do require the IRS Form 709 are:

  • You exceed the $13,000 annual gift to any one person (other than your spouse)
  • You consent to splitting a gift
  • You give a gift of future interest

You gave your spouse an interest in property that will be ended by some future event.

You can read more about the IRS Form 709 in IRS Publication 950.

Another regulation concerns the federal estate tax exemption.

This provision allows you to leave up to $3.5 million that is free of federal estate taxes. As with the lifetime federal gift tax exemption, if you have a spouse they are allowed a separate exemption. There are indications that this figure will change much for 2011. Additionally, any gifts that you make during your life will decrease your taxable estate. Those gifts that exceed the yearly exclusion will lower your estate tax exemption. The point here is that if you make annual gifts that fall within the constraints of the exclusion, you can actually reduce your taxable estate without suffering negative repercussions.
Gifting and 529 Plans

There a special provision in the federal gift tax guidelines that address 529 plan contributions. These are college saving plans that can be used by a future student to pay tuition and other educational expenses. The rule allows you to give lump sums as gifts that are then spread over a certain period of time (typically 5 years). This can be done without affecting the lifetime gift tax exemption or the estate tax exemption.

Gifts Can Be Tax Exempt

You will also find a listing of instances where your gifts can be considered tax-exempt. This means you can offer unlimited gifts in these areas without worrying about the gift tax or the estate tax. They include gifts given to spouses (assuming U.S. citizenship), to cover another person’s medical expenses, and someone else’s tuition expenses if paid directly to the college or university (some exceptions may apply).
There are also stipulations for filing a gift tax return.

This applies if you make a taxable gift that exceeds the annual exclusion rate. You would then be required a Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. You are required to fill it out even if you don’t owe taxes because of the $1 million exemption. There are certain filing rules based on your marital status and any gifts you want to claim on a return. Spouses will have to file their own returns, though some may choose to split gifts on the separate returns.

Gifting Deadline

If you’re planning on gifting assets held at a brokerage firm, I strongly suggest you check their policies regarding gifting certain securities. While you have until the end of the year to technically give the gift, certain firms may have sooner deadlines. Here’s an example of what you might see:

With the process and the desire for clients to complete gifting by year-end, Brokerage XYZ must receive client signed instructions in good order no later than December 17, 20xx, to ensure that the gifting of shares takes place and settles in the desired account. Any requests received on or after December 20, 2010, will be processed on a best efforts basis.

Common Reader Question Regarding Gifting Rules

I seem to get some variation of the following question, so I wanted to share the answer for all.

I understand that my parents can gift me $13,000.00 from each of them which
the total will be $26,000.00.

Can they also gift the $26,000 to my spouse or this gift is only for the
their children?

As you can see, the question refers to the concept of gift-splitting as each parent may gift $13,000 each (in 2012). The second part of the question is where most of the confusion comes in.

There does not have to be a relation between the giftor and giftee. Heck, you could give it to the local UPS driver if you so choose. Hope that clears that up!

Gifting Strategy Right For You?

If you are considering gifting as part of your estate planning, I strongly encourage you to meet with a qualified estate planning attorney. Recently, I had a client that questions on gifting (more advanced case) and I placed a call to a local attorney. I was dumbfounded on how so many of the rules that I was familiar with had changed. Lesson learned: it pays to have someone on your side who knows what’s going on. Don’t go at it alone.


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Comments | 35 Responses

  1. Frank says

    My uncle just won a settlement case. The money is tax free. If he give me 100,000, would I have to pay a tax on that? I know that the annual limit is 13000 per person. I’m just a bit confused. I don’t want to deposit the money and then be questioned about where I got it. I want to make sure it’s done the right way and hopefully pay nothing on it.

    • Tony A says

      Your Uncle can provide you the $100,000, part of which can be a gift of $13K – $26K if he is married, the remaining amount he can provide to you the remainder using part of his unified credit (Estate Assets).

      Another way to structure it is to provide you the allowable gift amount and the rest in a forgivable loan whereby he forgives $13K per year in the note due. The note must have interest say 1% and can also be written as such that in the event of his death the loan is forgiven as part of his unified credit to you.

  2. Philadelphia Collins says

    One problem… The recipient does not owe any tax when there are gift taxes. The donor is responsible for any tax. If Warren Buffet gave you $1 billion in stock you would receive $1 billion in stock tax free. He would have to pay the tax. You should probably suggest people talk to a CPA or tax professional.

  3. toonces says

    question, my mother collected life insurance on my father’s recent passing. if she were to gift this money to myself and my wife, what would be the penalty? if she were to split $26000 a year between myself and my wife (13000 a piece), would that be taxable on either end?

    • Jeff Rose says

      Nope. The life insurance payout is a non-taxable event. If she were then to gift the money immediately to you and you are within the gifting limits, then that would be a non-taxable event, too.

  4. Christina Noonan says

    Hi I have a question about gifting tax. If my mother gave me $13,000 and my husband $7,000 and we deposited them into a joint savings account would that cause my mother to have to pay the gift tax, should we open two separate accounts?

    • Jeff Rose says

      @ Christine It’s not necessary to open separate accounts. The gift is made to the individual. What that individual decides to do with the money does affect the person gifting.

  5. Kloyo dani says

    Hello. I’d appreciate your advice here. What is the best way for a person to hold a fundraising event for themselves? My friend was diagnosed with ALS, a terminal illness and the costs are just off the charts. Being on Medicare means you cannot have much money however, you need money for home modificationss, etc.
    If we hold a fundraiser and give her the money, she will not only owe taxes but this could result in major issues with Medicare. Any ideas on now we can help her? Thank you in advance.

  6. 3sandcs says

    If you had highly appreciated stock could you gift it to a college directly to pay for college tuition and avoid the capital gains tax so long as it remained under the $13,000 amount?

  7. Varun says


    My brother and sister-in-law want to gift my wife and me stock worth $50,000. I know that they will have to file Form 709.

    My wife doesn’t have a brokerage account, so can they transfer all stocks to my account (not joint) or it has to be to our separate accounts? In that case she will have to open a brokerage account.


  8. Kay says

    My parents are gifting each of us $13,000. They then want to be able to give us $2,000 as our Christmas gift which they do each year. I believe they cannot do that as they are giving us the $13,000, which is the maximum amount allowed. They believe they can without any tax penalty. Who is correct here? Thank you!

  9. Lydia says

    Are there any resources out there for gifting from Canada? Say i live in the states, and my parents want to send me a relatively large sum of money, what are the tax rules on that? i can’t find info anywhere. help! thanks.

  10. Scott says

    My mother (77 yoa) is considering giving me $50,000 as a “gift” which will be used to buy my wife out of her half of profit we would see in selling our house and separating (not divorce as of yet). Is my mother going to be taxed on that money? Ank you in advance

    • says

      @ Scott Your mom won’t be taxed if she gifts more than the $13,000 annual gifting amount. Anything greater would reduce her lifetime gift exclusion which for most people is a non-issue.

  11. Bruce & Judi Kupfer says

    My Sister in Law has been under going Cemo for some time and the results are not favorable. My brother and her are going to start some alternative treatments which are not covered by Ins. They have little money. My Mother is in a nursing home and has some money left. If she gifted her some money would it impact her when her money runs out and she switches to Medicare? Thanks

    • says

      @ Bruce Medicare rules in relation to getting assets out of one’s estate vary from state to state. I would encourage you to seek out an Elder Law Attorney to assist you.

  12. Mike says

    Hi, Jeff.

    Just to clarify, if my mother is gifting me $15k to assist with a down-payment on a house, she wouldn’t actually be responsible for any immediate taxes on the $2k over the $13,000 exemption, correct? She’ll just need to file IRS form 709 so there’s a record of the transaction? Thanks.

    • says

      @ Mike That’s correct. Regarding gifting more than the $13k allowable limit, the estate tax exemption would only come into play when she passes away and her estate is over whatever the amount is in that time. For most people, this is a non-factor.

  13. Ross says


    Quick question. A friend of mine wants to pay off my debt before she passes… including mortgage and auto loans. This amount is in access of 200,000. I’m assuming if she just gives me the money that one of us would end up paying taxes on it?? But would her just sending payment to the respective companies cause the same tax issue?


    • says

      @ Ross My basic understanding is that paying the debt directly to the companies will still be treated as a gift. Some exemptions are paying directly to charities, universities or medical bills. That doesn’t sound like the case.

      There still will be no taxes that have to be paid by either one of you (unless she is selling an investment to give you the $200k). Her estate tax exemption would just be reduced by the amount that she gives minus the $13000 allowable gift. For 2012, the exemption is $5 million; probably not a big deal. But in 2013 (as of now) it drops down to $1 million. If things don’t change, that might be an issue for her.

  14. Ron says


    My wife and I would like to transfer title of a condo worth $50,000 to her son. How does this get taxed? Are we able to do gift-splitting so $26,000 is considered an annual gift? Does the remainder require taxes to be paid on it or does it fall under the category of the unified credit and only reduces the amount of our estate we can leave later on as a gift? Thanks

    • says

      @ Ron Correct. You will be able to do the gift splitting for the $26k. And the rest is just like you spelled it out. As always, be sure to double check with a tax professional to verify.

  15. Dale K says


    My mother has assets in a revocable trust totaling about ~$1.5MM.. There are 4 beneficiaries(her children) myself included that are designated to each receive an equal share of the estate upon her passing. She has never gone over the annual gift exclusion thus has never filed a form 709 with the IRS. She now wants to gift each of us $200M in late 2012 to reduce the estate value substantially under $1MM to avoid any 2013 tax surprises. If I understand the law correctly, the unified credit would apply; the end result being able to gift each of the 4 kids with no tax liability. Also the estate would then be under $1mm in assets in 2013 which would eliminate exposure to the possibility of returning to the $1MM tax exemption on estates..
    I am sorry for being so wordy but I want to be 100% sure I am reading this correctly.. I have already talked to the IRS but want to reconfirm.


  16. Steve says

    My Mom (92yoa) has me as the excutor and Durable PofA. She wants to help out with purchase of a house. I’m a vet so I’m going VA and no closing cost, she is insistent and I told her that if she were to gift $13,000 each to my wife and I that we would put it in a savings account and use it if needed for whatever came up. She is afraid she is to be taxed because the money is from sale of apartments she had but sold in August. What advice can you give…

    Thank you,

    • says

      @ Steve She won’t be taxed on the money she gifts to you and your wife but she could be taxed on the sale of the apartments. That all depends on what her basis was in the complex.

  17. Craig says

    This is a completely hypothetical question…but it occurred to me while i was reading this post and the questions that followed. Let’s say that someone had LOTS of money (the Warren Buffet scenario) and wanted to give it to you but not be taxed or have it affect the lifetime cap. Would you end up in a heap of trouble with the IRS (tax evasion is the term that comes to mind) if you got a bunch of people to act as intermediaries? The rich person could “gift” $13,000 to hundreds of people (or thousands i suppose) and those people could then turn around immediately and “gift” the funds to the one primary recipient. Obviously the end recipient would get audited…and this sounds quite sketchy…but is it TECHNICALLY legal? Don’t worry…I will not try it. What if the intermediary parties were CONTRACTUALLY BOUND to “gift” the amount over to the final recipient? Does a contract make it no longer a “gift”? What if they were allowed to keep a portion…say $100…for their efforts. How many of these people end up in jail? Seems like quite a bit of hassle…but might work for someone trying to move a lot of money. Thanks.

  18. Jeanne says

    Husband died, no life insurance or retirement but had a share in a farm in a trust. My daughter is now part of this trust. Farm being sold for 1M, she wants to give me big share of her share of money. (a promise to her dad). I filed bankruptcy 2010 due to husbands medical bills and lost house and car. This money will be my retirement money. How do we do this with the lease amount of taxes and cost to my daughter. Can it be a loan with 1% interest, or what? Right now I make $20T/year and am 60 yrs old. I want this to be on the up and up. What should we do?


    • says

      @ Jeanne You definitely need to meet with a trusted financial adivsor, CPA and attorney that can help you out. I would first find a good CPA that has experience in these matters. They can then connect you with a good attorney and advisor to assist in the other matters.

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