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Law Offices of Ronald W. Rutz
Senior Voice Archives

Gift Tax for Recipients; Losing a Spouse

Q: I just gave a large gift to a grandson. Does he have to pay tax on that?

A: Although I have answered this question before, it is one that seems to be asked almost on a weekly basis. Any tax on a gift will be paid by the giver, not the receiver (so the gift does not have to be counted as income by your grandson).

As long as you do not give him more than a total of $10,000 of value in any fiscal year (January 1st to December 31st), you do not have to pay tax. But if the total amount of value of all the transfers to him exceeds $10,000 within that year, you are required to pay gift tax on the excess. Gifts to people other than your grandson will not affect his $10,000 amount.

You can avoid paying any tax, however, by filing an informational tax return wherein you deduct the excess above $10,000 from the current year's estate and gift tax exemption (in 1999 it is $650,000). But if you do that, the amount so deducted is now lost to shelter future gifts or estate taxes. Unlike the $10,000 exemption per person per year that annually renews itself, the $650,000 estate and gift exemption is like money in the bank. Once some of it is withdrawn, it can not be replaced.

For gifts, and for inheritance purposes, one spouse can transfer to the other spouse any amount. The 1999 $650,000 shelter only affects transfers to non-spouses. And finally, one can transfer any amount to a qualified charity.

Q: If someone loses a spouse, what is the common mistake that seems to be made?

A: Before I answer your question, I just want to stress that nothing must be done immediately. The surviving spouse should only start dealing with matters when he or she is ready to do so. But to answer your question, a surviving spouse seems to feel the need to close out bank accounts immediately, especially before seeking advice. Bank accounts in both names are not frozen and accounts in the name of the deceased can be accessed for up to $27,000 by the survivor signing a Small Estate Affidavit. Immediate action is not required to be sure that funds are available to the survivor, at least in Colorado.

If a common checking account is closed and we otherwise do not have to go to Court, then we lose the ability to just deposit checks arriving after death that are made out to the deceased. With the account, the check can be deposited into that account and then the other person on the account can withdraw the sums. Such common accounts should be kept open for at least six months or more. It is surprising how often unexpected checks will pop up.

Otherwise we might return checks and wait weeks or even months until new ones are sent. And many times the issuer will only return the check made out to the Estate and will not honor Colorado's Small Estate Affidavit. Thus, the family is left with the choice of starting a Probate or just abandoning the money.

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