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Estate and Gift Taxes
Taxes must be paid on estates and gifts above a certain value. The two subjects are intertwined because an individual may reduce the value of his estate by "gifting" (giving money and property) away every year.
SIDEBAR: Congress has passed legislation phasing out the federal estate tax until it disappears altogether in 2010.
IRS rules allow an individual to "gift" another person up to $11,000 per year. Beyond that amount, the individual receiving the money must pay gift taxes on the excess. For example, gift taxes would be owed on $1,000 if the amount of the gift were $12,000.
For 2005, estates valued at less than $1.5 million are exempt, meaning they are not subject to the estate tax. The exemption amount rises to $2 million in 2006 and $3.5 million in 2009.
SIDEBAR: Estates (or the portion of the estate) left to the surviving spouse are typically exempt from tax regardless of the value.
Estate and gift tax laws are complicated. It is highly recommended that you consult with a board certified tax and probate attorney if you have a large estate.
My mother gave me $10,000. Do I have to pay taxes on the money?
No. Your mother may gift you up to $11,000 annually without either of you incurring any tax liability.
I have seven children. Can I gift more than $11,000 in one year?
Yes. You may gift the children $11,000 each (for a total of $77,000) if you wish. There is no limit to the number of people that you can gift during the year or how much money you can gift during your lifetime.
My husband's mother gave him $20,000. Does he have to pay taxes on the amount over $11,000?
No. The extra $9000 can be allotted to you since you are his spouse. You must fill out a "gift splitting" form with the IRS to report that you are splitting the gift and do not owe taxes on the money.