December 17, 2024 • 33 mins
Ever wondered if Santa's sleigh full of gifts comes with a side of IRS paperwork? In this festive and thought-provoking episode, we explore whether the jolly old elf is subject to gift taxes.
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Episode Transcript
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Speaker 1 (00:31):
Well, good afternoon, Michiganers. It is Tuesday, December seventeenth, twenty
twenty four. That means one week to finish your Christmas shopping.
And of course, this is Tuesday with Tom, Michigan's only
weekly Internet show where we answer your questions about estate
(00:53):
planning and a state settlement in Michigan, and we don't
send you a bill. I'm your host, Tom, a state
planning attorney, lifelong Michigan resident, an ambassador for all things
good in this great state of Michigan. Welcome, Welcome to
today's program. Will a brief recap of the last episode.
(01:15):
Have you sent your crummy letters? If you have an islet?
And if you have one, you will likely know what
that means, But for those who don't know what it means,
that's an irrevocable life insurance trust. I discuss the importance
of the annual crummy letter that needs to be sent
(01:37):
in order to avoid text issues with the irs. If
you have an islet, double check to make sure that
your crummy letters have been sent, and if you have
any questions about that, I invite you to listen to
last week's episode. Well today, one week to go before
Christmas today's topic, does Santa have to pay gift taxes?
(02:02):
Please remember though that what I'm about to discuss during
the program is, as always for educational purposes. It is
not intended to be legal advice. You need to work
with your attorney and your tax advisor to determine what
is appropriate for you and your estate plan. So does
(02:32):
Santa have to pay gift tax as well? Number one?
Obviously Christmas, here we're looking at making gifts, So we're
talking about oftentimes people make gifts just for the sake
of making gifts to their friends, their families, their loved ones.
Might be birthdays, might be holidays, might be graduations, or
(02:54):
it might just be because they want to give something
to somebody. And another reason that oftentimes clients are going
to be making gifts is they're using it as a strategy,
if you will, to reduce the size of their estate.
Perhaps they have a federal estate tax problem where their
(03:16):
estate is larger than the current federal estate tax exemption,
which in twenty twenty four is thirteen point six million.
Next year that is going up to thirteen point nine million.
But unless something changes in Washington, d C. At the
(03:38):
end of twenty twenty five that's going to be dropping
down to five million. I've had previous episodes of the
program where I've talked about the federal estate tax exemptions,
and if that's a concern for you, I invite you
to listen to those. But oftentimes it's going to be
a gifting strategy that people might start using to shrink
the size of their estate. They might start making annual
(04:01):
gifts to their children. And currently the annual gift tax exemption,
that's the amount that the IRS says that you can
give anybody as many people as you want to. You
can give them up to eighteen thousand dollars a year,
and you don't have to worry about gift taxes on
that eighteen thousand. Now that's a total eighteen thousand, not
(04:24):
just each gift eighteen thousand. So if you were to
give somebody eighteen thousand dollars in January one, had you
done that, technically you weren't supposed to be making any
birthday gifts, Christmas gifts, whatever happens to be during the
rest of the year. Now that annual gift tax exemption
is going to go up to nineteen thousand dollars next year,
(04:45):
so many clients might start gifting away in interest in
their estate, maybe providing eighteen thousand dollars gifts to their children.
Oftentimes at the end of the year. There is no
limit to the number of individuals you can make those
gifts too, so you could give eighteen thousand dollars a
(05:05):
year to as many people as you wanted to do.
I actually had a client this goes back a number
of years ago, when the federal estate tax was much
lower the exemption amount, and he had a federal state
tax issue, and part of my strategy for him was,
why don't you just start making gifts to all of
your congressmen and your congress women, because if you don't
(05:29):
do that and shrink the size of your state, your
money's going to end up going to the federal government.
Anyhow Well, he didn't quite agree with that strategy, but
it was something that could have been considered. Spouses married people,
you can split the gift. That What that means is
each spouse has an eighteen thousand dollars exemption. That's thirty
(05:49):
six thousand dollars between the two spouses, or thirty eight
thousand dollars in twenty twenty five, and it could be
just a gift from the one spouse of the entire
thirty six thousand, but it will be considered a split
gift between both spouses. So you can start making some
headway in oftentimes shrinking the size of your state, or
(06:14):
if you just want to be making gifts to people. Now,
the problem with a gift tax is it's a graduated
scale and it tops out at forty percent, and nobody
wants to pay a forty percent gift tax. So what's
required when you make gifts that exceed that in this
(06:37):
year eighteen thousand dollars a year, You now have to
file a gift tax return. That's a return that's part
of your annual tax return that's going to be filed
in April. And on that gift tax return, you are
going to have to report the amount of gifts that
you made that exceeded that eighteen thousand dollars per person.
(07:00):
So you'll have to report those gifts to the irs,
and on that return you have to make a choice.
You have to choose I will pay the gift tax now,
meaning there'll be a calculation made as to how much
the gift tax would be on the graduated scale, and
you'll simply pay that tax. The alternative to that is
(07:23):
to say, I'm going to defer paying the gift tax
until I die, and then we will apply the amount
of that gift against my overall annual federal estate tax
exemption amount. Meaning what if you were to be making
(07:43):
these gifts and they exceed the eighteen thousand, but at
the time of your death, if it would be in
this year, your total federal estate tax or your total
estate including all those gifts that you made, doesn't it
seed six thirteen point six million dollars. You're never going
(08:03):
to pay a tax, but you still have to file
the return. You still have to say to the IRS, Look,
I'm making this gift. It exceeds the eighteen thousand, but
I'm going to defer it and then will do the
calculation at the time of my death based upon what
my federal estate is worth at that time. Now, there's
(08:24):
also some good news concerning if you've listened to previous
episodes of this that when that currently scheduled federal estate
tax exemption of thirteen point six this year thirteen point
nine next year drops down to five million, the IRS
(08:44):
still says all of these gifts that you made during
your lifetime. Even though they've exceeded the five million, you
can still apply them towards the amount that was available
to you in the year that you made the gifts,
so you could, in theory, by year's end, give away
thirteen point six million dollars this year, file your gift
(09:08):
tax return reporting the thirteen point six million, deferring that
until you die, and if you didn't die until twenty sixteen,
and if the federal estate taxemption goes down to only
five million, you won't get punished for that. You will
still be allowed to use that federal estate tax exemption
amount that was available when you made the gift that
(09:32):
you were relying upon. That. But bottom line, there can
be tax considerations that Santa needs to be aware of
in making gifts. Now we're not talking about charitable giving.
That's a whole different conversation. We're just talking about gifts
to individuals, friends, family members, just individuals.
Speaker 2 (09:54):
As that we're talking about.
Speaker 1 (09:57):
Now, there are some other options that Santa should also
be aware of, and that is one spouses and this
is us. Spouses can give an unlimited amount to their
spouse without having to report it to the irs, without
having to pay a gift tax on it without having
to do the gift tax return. So I could give
(10:18):
my spouse an unlimited amount of assets and that would
not be a taxable gift. It would not be a
reportable gift that I have to make. But again, that's
going to be US spouses. If I have a non
US spouse, that's going to be a different calculation, a
(10:39):
significantly less calculation. I think currently it's a neighborhood of
one hundred and seventy five thousand dollars or something like that,
So it's a much less amount that can be given
to non US spouses. Another exemption, and this might be
something that Santa thinks about. If Santa is looking at
(11:01):
paying college expenses for children, grandchildren, cost of higher education.
If you were to pay directly to the college or
university cost of higher education for say a child or grandchild,
that is an unlimited amount. So if I have a
(11:24):
grandchild that's going to go to let's say Michigan State University,
and I choose to pay the tuition to Michigan State
University directly to the university for my grandchild, that is
an unlimit that is not a taxable gift. That I
need to report to the IRS. But the key is
(11:47):
it has to be paid directly to the university. So
you can't give the money to your child and then
have your child pay it, or is your grandchild that
simply you're making payment directly.
Speaker 2 (11:58):
To the university.
Speaker 1 (12:00):
Another exception, if you will, is uncovered medical expenses. Let's
say you have a friend a family member has some
large outstanding medical expenses or is incurring significant medical expenses
and you want to help them. You can pay an
unlimited amount directly again to the provider of the service,
(12:25):
and that is not going to be a taxable gift.
So again some exceptions between us spouses, cost of higher
education and to cover unpaid medical expenses. Now, speaking of college,
you might be familiar with a five to twenty nine plan.
I've talked about five twenty nine plans in previous episode.
(12:47):
That's where you're going to be putting money into an
account a five to twenty nine plan for use of
let's say your child to go to college one day
or a grandchild to go to college one day. Michigan
has their mi I Saves, which is their five to
twenty nine plan. You can front load a five to
(13:08):
twenty nine plan with five years of gifts. What does
that mean? You could look and say, hey, I'm going
to go set up befour years end a five twenty
nine plan for my child or my grandchild. I'm going
to take that eighteen thousand dollars that I can give
this year. I'm going to multiply that by five and
(13:29):
that is the amount that I can actually put into
that five to twenty nine plan this year. Again, married people,
we can double that five times. Thirty six thousand is
the amount that could be put into a five to
twenty nine plan this year, all at once. Now what
you need to understand, though, is you're front loading the
(13:51):
five twenty nine plan really to get it started. It
also means, oh that you cannot then be making gifts
for the next four years into that five toy nine
plan because you've already frontloaded with five years of gifts.
But if you were looking at your end considering setting
up an educational plan for a grandchild or child, and
(14:14):
you really want to jump start it and set aside
some significant dollars into that plan, you can front load
it with five years worth of gifts, and now five
toenty nine plans a little bit different because you can
actually use some of it for high school and so,
and some of it can actually be used to pay
(14:35):
student loans. So if that's a thought that you have,
you might want to explore it further and see what
options you have with a five twenty nine plan. So
those are some of the exceptions, if you will, or
the primary exceptions to the individual gifts that we're normally
talking about. Now, some considerations, some considerations are these, and
(14:58):
it's something that people offer times don't think about, don't
actually think about gifts. Let's say I'm sitting here and
I'm saying I've got a home and I'm going to
make my home jointly owned with my son Johnny. Well,
a lot of people never stop to realize is in
doing that, that is a gift. I've given Johnny something
(15:22):
that Johnny didn't already own. I e an interest in
my home. And if that interest in my home exceeds
again eighteen thousand dollars this year for an individual, that
is a taxable gift. That is a gift that needs
to be reported on a gift tax return. That tax return,
(15:43):
you're going to make that election about paying the tax
now or deferring it until your death. Clients do this
all the time as part of an estate planning strategy.
They think that's what they should do. They put their
child on their house with them, or maybe they just
gift the home outright to the child, different different situations,
not stopping to realize what did they do? They just
(16:05):
made a taxable gift that exceeds eighteen thousand dollars. Now,
let's say that's something that you want to do and
it's going to exceed eighteen thousand dollars. Another option for you,
if you don't want to have to file the gift
tax return, is to consider annual gifts of a eighteen
(16:27):
thousand dollars interest in the property. So you take how
much is the property worth. Let's say it's one hundred
thousand dollars. I'm going to give you eighteen thousand dollars
worth of that one hundred thousand dollars this year, and
then next year, I'm going to do the same thing.
Next year, I'm gonna do the same thing, and over
time you can end up giving the entire property while
(16:50):
using the annual exemption amount to be applied towards what
you're doing. So you could give a partial interest over
several years. I had a client a number of years ago.
What they wanted to do. They wanted to buy a
daughter a new home. She was going to get a
mortgage on it. So what they did is they went
and got the mortgage on the home, and then annually
(17:14):
or she got the mortgage on the home, annually, they
would make a gift towards paying off the mortgage. That
gift was based upon the value of the home. It
was just a tax planning strategy. So there's different different
ways to look at perhaps helping your children out if
they're looking at some sort of a home situation. Good
(17:35):
news too, in Michigan, if I make that gift to
my child, I have to ask myself, does that uncap
my property taxes? Because in general, in Michigan, when there's
a transfer of ownership of real estate, whether it's an
entire ent entire transfer or partial, that is potentially a
(18:02):
taxable gift. Well, the good news is Michigan has expanded
the exemption amount. That is the list of people that
you can now transfer your Michigan real estate too. That
will not be an uncapping of your property taxes. So again,
if you're looking at real estate and you're considering making
(18:25):
a gift of real estate to an individual, make sure
you check out and see are they in this new
group of people that you can make a gift to
without uncapping property taxes, because if they're not, what you
need to understand is when you make that gift of
real estate, you're going to be uncapping the property taxes,
(18:47):
which is going to be a greater expense for the
person that you just gave the property too. So they've
expanded it something for you to consider if you're going
to be transferring real estate, and your tax advisor should
be to explain all of that to you. Let's say
you have a minor grandchild man or child, Okay, and
(19:11):
you're looking at well, I want to make a gift.
Let's say I want to make an eighteen thousand dollars
gift to my one year old grandchild. I obviously don't
want to hand eighteen thousand dollars over to buy one
year old grandchild. One of the things that you could
consider doing, and I've talked about this in previous episodes
of the program, So if it's something that's of interest
(19:33):
to you, I invite you to listen to a previous episode,
and that would be an UTMA A count Uniform Transfer
to Minor account. It's basically an account. It can be
set up at a bank, can be set up at
a financial institution, a financial services like a Merrill Lynch whatever,
wherever you're doing your year investing, and you set up
(19:53):
the UTMA count for the minor, and then rather than
handing the eighteen thousand dollars over to the minor, you
put the eighteen thousand dollars into this UTMA account. Again
planning strategy. So if you're looking at doing something like that,
check out an UTMA account. UTMA accounts can hold on
(20:14):
to the money till the person turns eighteen, or you
can actually extend that when the account is set up
to be twenty one, So you can actually set up
an UTMAH account put money into it that the grandchild
would receive when they turn eighteen or twenty one, depend
upon how the.
Speaker 2 (20:33):
Account is set up.
Speaker 1 (20:36):
You might also be familiar with another strategy that you
sometimes hear about medicaid. And sometimes people say, well, let
me start giving stuff away in order to make myself
poor so that I will qualify for medicaid. So it's
not giving things away to reduce federal state taxes. It's
(20:57):
shrinking the size of the estate so that I will
have a small enough estate that I would qualify for Medicaid. Well,
under the current medicaid law, what you need to remember
is gifts made within five years of applying for Medicaid
have to be reported as part of that Medicaid application
(21:19):
because the government doesn't want you to be giving away
your state shortly applying for Medicaid in order to qualify.
So think about in general, you have to report those gifts,
and essentially those gifts could end up disqualifying you for
a period of time from receiving Medicaid, because again, the
(21:41):
government doesn't want you giving your estate away in order
to shrink it for purposes of Medicaid. Not exactly something
SANTA is looking at and making gifts, but it might
be some of Santa's overall Medicaid planning strategy. Now let's
look at a different let's look at the underside. What
about the person who receives the gift from you, whether
(22:04):
it's this eighteen thousand dollars or whatever, the amount, whatever
the asset happens to be. Well, the big problem, potential
problem is if you're giving away an asset that has
increased in value, then we have to look at two things.
So let's say I buy that house for fifty thousand dollars,
(22:29):
and let's just say I give that home to my child,
and it's now worth twice as much, worth one hundred thousand.
I know these numbers aren't actual, but just work the
math with me. So I bought it for fifty, it's
worth one hundred, and I give it to my child.
What have I just done? Well, what I have just
done in making that gift is I pass on to
(22:53):
my child my basis in the asset. In this case,
what did I pay for? Other example, I've got fifty
thousand dollars worth of Google stock that I bought. It's
now worth one hundred thousand dollars, and I give that
Google stock to my child. I'm playing Santa. I give
them that Google stock to my child. Again, I am
(23:15):
passing on to my child my basis in the stock.
What does that really mean? Essentially, what I'm doing is
I'm passing on potential capital gains taxes, because now if
my child takes and sells that stock for one hundred
thousand dollars and their basis is only fifty because that's
(23:37):
what I paid for. They my child is going to
have to pay the capital gains tax on that fifty
thousand dollars gain. So need to be mindful that when
you are gifting away appreciated assets, that you're giving away
the basis in the asset, which could end up passing
(24:01):
on capital gains tax to the person you're making the gift. Now,
why is that so important? Well, another reason other than
it's a tax that you're passing on to the person,
is that under current law, if that same person inherited
that asset from you at the time of your death,
(24:23):
they would get a stepped up basis in the asset.
So let's use that example of my Google stock. I
bought it for fifty thousand. Rather than making a gift
of it right now to my child, I simply put
in my estate plan that when I die, my child
gets the Google stock I die. Let's say the google
(24:45):
stock is worth one hundred thousand dollars. When I die,
my child's basis now in that stock is going to
be stepped up to one hundred thousand dollars, which means
what there is no capital gains tax. So part of
this strategy, when you really get into involving a lot
(25:06):
of gifts that are going to be made, particularly for
perhaps tax planning purposes on your own, you also have
to look at from the standpoint of the person that
you're making the gift too, and what are you potentially
passing on to them, And maybe the gifts shouldn't be made.
Maybe there's a different strategy that I might be used.
(25:29):
In some cases, you might be weighing and measuring the
difference between a federal estate tax and capital gains taxes
versus no capital gains tax.
Speaker 2 (25:40):
Was stepped up basis.
Speaker 1 (25:41):
I had a client that I was working with a
number of months ago who was thinking about giving a
property to their child because they thought that would be
a good thing to do. And by the time they
looked at it and realized, hey, this property has grown
immensely in valid. Tell you over the time that I've
(26:02):
earned it, determination was made my child would be better
off to inherit it than for me to give it
to them because of the stepped up basis when it
in the property at the time that they would receive it.
So a lot of tax considerations oftentimes are going to
(26:23):
come into play when Santa is going to be making gifts,
so be sure Santa understands the tax ramifications of the
gifts he or she is making. Of course, Amander and
(27:05):
I would be honored to have an opportunity to help
you protect your loved ones by putting together your estate plan,
amending a current plan, or assisting you in settling a state,
or looking at some of these tax considerations of the
gifts that you're looking at, and working with your tax
advisor as well. Simply head on over to Doyle LAWPC
(27:28):
dot com. That's the website. There you're going to find
complete information on how do you schedule a consultation with us?
We have virtual consultations that will be by virtue of
a zoom call, or if not going to if you
(27:48):
don't want to do a zoom call, do a virtual
We can schedule a telephone consultation, or we also offer
in person consultations and we now have in person consultations
at our new headquarters in Grand Rapids as well as
our East Lansing location. So all of that information will
(28:10):
be available at the website. You could also call the
office five one seven three two three seven three six
six and tell the operator that you would like to
schedule a meeting with us, and they should be able
to get that consultation scheduled for you as well. Perhaps
you're looking at just an individual document. All you need,
(28:31):
let's say, is a new healthcare power of attorney. Check
out the Legal Store, which again is DOYLEOFPC dot com,
and there you're going to find that there is ability
for many people to order individual legal documents through the
Legal Store online. You'll order it online, you'll pay for
(28:51):
it online, and we will deliver it to you online,
unless you need to have it mailed to you, so
you can order just in individual documents. A very common
one is a certificate of trust. Let's say you're the
trustee a trust and you're trying to sell real estate
that the trust owns and the title company says, hey,
you need to have a certificate of trust. Updated certificate
(29:14):
of trust. Head over the Legal Store. You should be
able to order that document online through the Legal Store.
So again, all of that information, besides general information about
us and what we do, et cetera, will be available
at Doyle Law PC.
Speaker 2 (29:34):
Dot com.
Speaker 1 (29:45):
And that's going to be it for today's show. Again.
One week to finish your Christmas shopping. I hope everything
is going well for you as the holiday approaches. As always, oh,
if you have a comment about the program, a top
that you'd like to have me discuss, or questions that
you'd like to have answered, head on over to Tuesday
(30:06):
with Tom dot com. That's the if you're not already there,
that's the website for the podcast, and you can leave
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your computer or your phone, leave me a voice message
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(30:27):
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Speaker 2 (30:34):
That would be Tuesday with Tom.
Speaker 1 (30:36):
And while you're at it, don't forget to follow the
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(30:58):
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(31:22):
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(31:46):
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service as well. Well. Thanks again for spending some of
your time with me today, and as always, I hope
(32:09):
that you have an awesome day and an awesome week
in Michigan. And since next week is going to be Christmas,
there won't be a program then, so Merry Christmas to
all of you. There may or may not be a program.
I haven't looked at the following week, but if we
don't have another program, the first coming with New Year's
(32:34):
Best Wish is not only for merry Christmas, but for
a wonder filled holiday and New Year for you and
your family. Stay safe now. Tuesday with Tom has been
brought to you by the estate planning attorneys at Doyle
Law PC. To learn how we can help you with
(32:57):
your estate plan or with settling a loved one's state,
please call us today at five one seven three two
three seven three six six. That's five one seven three
two three seven three six six h
Well, good afternoon, Michiganers. It is Tuesday, December seventeenth, twenty
twenty four. That means one week to finish your Christmas shopping.
And of course, this is Tuesday with Tom, Michigan's only
weekly Internet show where we answer your questions about estate
(00:53):
planning and a state settlement in Michigan, and we don't
send you a bill. I'm your host, Tom, a state
planning attorney, lifelong Michigan resident, an ambassador for all things
good in this great state of Michigan. Welcome, Welcome to
today's program. Will a brief recap of the last episode.
(01:15):
Have you sent your crummy letters? If you have an islet?
And if you have one, you will likely know what
that means, But for those who don't know what it means,
that's an irrevocable life insurance trust. I discuss the importance
of the annual crummy letter that needs to be sent
(01:37):
in order to avoid text issues with the irs. If
you have an islet, double check to make sure that
your crummy letters have been sent, and if you have
any questions about that, I invite you to listen to
last week's episode. Well today, one week to go before
Christmas today's topic, does Santa have to pay gift taxes?
(02:02):
Please remember though that what I'm about to discuss during
the program is, as always for educational purposes. It is
not intended to be legal advice. You need to work
with your attorney and your tax advisor to determine what
is appropriate for you and your estate plan. So does
(02:32):
Santa have to pay gift tax as well? Number one?
Obviously Christmas, here we're looking at making gifts, So we're
talking about oftentimes people make gifts just for the sake
of making gifts to their friends, their families, their loved ones.
Might be birthdays, might be holidays, might be graduations, or
(02:54):
it might just be because they want to give something
to somebody. And another reason that oftentimes clients are going
to be making gifts is they're using it as a strategy,
if you will, to reduce the size of their estate.
Perhaps they have a federal estate tax problem where their
(03:16):
estate is larger than the current federal estate tax exemption,
which in twenty twenty four is thirteen point six million.
Next year that is going up to thirteen point nine million.
But unless something changes in Washington, d C. At the
(03:38):
end of twenty twenty five that's going to be dropping
down to five million. I've had previous episodes of the
program where I've talked about the federal estate tax exemptions,
and if that's a concern for you, I invite you
to listen to those. But oftentimes it's going to be
a gifting strategy that people might start using to shrink
the size of their estate. They might start making annual
(04:01):
gifts to their children. And currently the annual gift tax exemption,
that's the amount that the IRS says that you can
give anybody as many people as you want to. You
can give them up to eighteen thousand dollars a year,
and you don't have to worry about gift taxes on
that eighteen thousand. Now that's a total eighteen thousand, not
(04:24):
just each gift eighteen thousand. So if you were to
give somebody eighteen thousand dollars in January one, had you
done that, technically you weren't supposed to be making any
birthday gifts, Christmas gifts, whatever happens to be during the
rest of the year. Now that annual gift tax exemption
is going to go up to nineteen thousand dollars next year,
(04:45):
so many clients might start gifting away in interest in
their estate, maybe providing eighteen thousand dollars gifts to their children.
Oftentimes at the end of the year. There is no
limit to the number of individuals you can make those
gifts too, so you could give eighteen thousand dollars a
(05:05):
year to as many people as you wanted to do.
I actually had a client this goes back a number
of years ago, when the federal estate tax was much
lower the exemption amount, and he had a federal state
tax issue, and part of my strategy for him was,
why don't you just start making gifts to all of
your congressmen and your congress women, because if you don't
(05:29):
do that and shrink the size of your state, your
money's going to end up going to the federal government.
Anyhow Well, he didn't quite agree with that strategy, but
it was something that could have been considered. Spouses married people,
you can split the gift. That What that means is
each spouse has an eighteen thousand dollars exemption. That's thirty
(05:49):
six thousand dollars between the two spouses, or thirty eight
thousand dollars in twenty twenty five, and it could be
just a gift from the one spouse of the entire
thirty six thousand, but it will be considered a split
gift between both spouses. So you can start making some
headway in oftentimes shrinking the size of your state, or
(06:14):
if you just want to be making gifts to people. Now,
the problem with a gift tax is it's a graduated
scale and it tops out at forty percent, and nobody
wants to pay a forty percent gift tax. So what's
required when you make gifts that exceed that in this
(06:37):
year eighteen thousand dollars a year, You now have to
file a gift tax return. That's a return that's part
of your annual tax return that's going to be filed
in April. And on that gift tax return, you are
going to have to report the amount of gifts that
you made that exceeded that eighteen thousand dollars per person.
(07:00):
So you'll have to report those gifts to the irs,
and on that return you have to make a choice.
You have to choose I will pay the gift tax now,
meaning there'll be a calculation made as to how much
the gift tax would be on the graduated scale, and
you'll simply pay that tax. The alternative to that is
(07:23):
to say, I'm going to defer paying the gift tax
until I die, and then we will apply the amount
of that gift against my overall annual federal estate tax
exemption amount. Meaning what if you were to be making
(07:43):
these gifts and they exceed the eighteen thousand, but at
the time of your death, if it would be in
this year, your total federal estate tax or your total
estate including all those gifts that you made, doesn't it
seed six thirteen point six million dollars. You're never going
(08:03):
to pay a tax, but you still have to file
the return. You still have to say to the IRS, Look,
I'm making this gift. It exceeds the eighteen thousand, but
I'm going to defer it and then will do the
calculation at the time of my death based upon what
my federal estate is worth at that time. Now, there's
(08:24):
also some good news concerning if you've listened to previous
episodes of this that when that currently scheduled federal estate
tax exemption of thirteen point six this year thirteen point
nine next year drops down to five million, the IRS
(08:44):
still says all of these gifts that you made during
your lifetime. Even though they've exceeded the five million, you
can still apply them towards the amount that was available
to you in the year that you made the gifts,
so you could, in theory, by year's end, give away
thirteen point six million dollars this year, file your gift
(09:08):
tax return reporting the thirteen point six million, deferring that
until you die, and if you didn't die until twenty sixteen,
and if the federal estate taxemption goes down to only
five million, you won't get punished for that. You will
still be allowed to use that federal estate tax exemption
amount that was available when you made the gift that
(09:32):
you were relying upon. That. But bottom line, there can
be tax considerations that Santa needs to be aware of
in making gifts. Now we're not talking about charitable giving.
That's a whole different conversation. We're just talking about gifts
to individuals, friends, family members, just individuals.
Speaker 2 (09:54):
As that we're talking about.
Speaker 1 (09:57):
Now, there are some other options that Santa should also
be aware of, and that is one spouses and this
is us. Spouses can give an unlimited amount to their
spouse without having to report it to the irs, without
having to pay a gift tax on it without having
to do the gift tax return. So I could give
(10:18):
my spouse an unlimited amount of assets and that would
not be a taxable gift. It would not be a
reportable gift that I have to make. But again, that's
going to be US spouses. If I have a non
US spouse, that's going to be a different calculation, a
(10:39):
significantly less calculation. I think currently it's a neighborhood of
one hundred and seventy five thousand dollars or something like that,
So it's a much less amount that can be given
to non US spouses. Another exemption, and this might be
something that Santa thinks about. If Santa is looking at
(11:01):
paying college expenses for children, grandchildren, cost of higher education.
If you were to pay directly to the college or
university cost of higher education for say a child or grandchild,
that is an unlimited amount. So if I have a
(11:24):
grandchild that's going to go to let's say Michigan State University,
and I choose to pay the tuition to Michigan State
University directly to the university for my grandchild, that is
an unlimit that is not a taxable gift. That I
need to report to the IRS. But the key is
(11:47):
it has to be paid directly to the university. So
you can't give the money to your child and then
have your child pay it, or is your grandchild that
simply you're making payment directly.
Speaker 2 (11:58):
To the university.
Speaker 1 (12:00):
Another exception, if you will, is uncovered medical expenses. Let's
say you have a friend a family member has some
large outstanding medical expenses or is incurring significant medical expenses
and you want to help them. You can pay an
unlimited amount directly again to the provider of the service,
(12:25):
and that is not going to be a taxable gift.
So again some exceptions between us spouses, cost of higher
education and to cover unpaid medical expenses. Now, speaking of college,
you might be familiar with a five to twenty nine plan.
I've talked about five twenty nine plans in previous episode.
(12:47):
That's where you're going to be putting money into an
account a five to twenty nine plan for use of
let's say your child to go to college one day
or a grandchild to go to college one day. Michigan
has their mi I Saves, which is their five to
twenty nine plan. You can front load a five to
(13:08):
twenty nine plan with five years of gifts. What does
that mean? You could look and say, hey, I'm going
to go set up befour years end a five twenty
nine plan for my child or my grandchild. I'm going
to take that eighteen thousand dollars that I can give
this year. I'm going to multiply that by five and
(13:29):
that is the amount that I can actually put into
that five to twenty nine plan this year. Again, married people,
we can double that five times. Thirty six thousand is
the amount that could be put into a five to
twenty nine plan this year, all at once. Now what
you need to understand, though, is you're front loading the
(13:51):
five twenty nine plan really to get it started. It
also means, oh that you cannot then be making gifts
for the next four years into that five toy nine
plan because you've already frontloaded with five years of gifts.
But if you were looking at your end considering setting
up an educational plan for a grandchild or child, and
(14:14):
you really want to jump start it and set aside
some significant dollars into that plan, you can front load
it with five years worth of gifts, and now five
toenty nine plans a little bit different because you can
actually use some of it for high school and so,
and some of it can actually be used to pay
(14:35):
student loans. So if that's a thought that you have,
you might want to explore it further and see what
options you have with a five twenty nine plan. So
those are some of the exceptions, if you will, or
the primary exceptions to the individual gifts that we're normally
talking about. Now, some considerations, some considerations are these, and
(14:58):
it's something that people offer times don't think about, don't
actually think about gifts. Let's say I'm sitting here and
I'm saying I've got a home and I'm going to
make my home jointly owned with my son Johnny. Well,
a lot of people never stop to realize is in
doing that, that is a gift. I've given Johnny something
(15:22):
that Johnny didn't already own. I e an interest in
my home. And if that interest in my home exceeds
again eighteen thousand dollars this year for an individual, that
is a taxable gift. That is a gift that needs
to be reported on a gift tax return. That tax return,
(15:43):
you're going to make that election about paying the tax
now or deferring it until your death. Clients do this
all the time as part of an estate planning strategy.
They think that's what they should do. They put their
child on their house with them, or maybe they just
gift the home outright to the child, different different situations,
not stopping to realize what did they do? They just
(16:05):
made a taxable gift that exceeds eighteen thousand dollars. Now,
let's say that's something that you want to do and
it's going to exceed eighteen thousand dollars. Another option for you,
if you don't want to have to file the gift
tax return, is to consider annual gifts of a eighteen
(16:27):
thousand dollars interest in the property. So you take how
much is the property worth. Let's say it's one hundred
thousand dollars. I'm going to give you eighteen thousand dollars
worth of that one hundred thousand dollars this year, and
then next year, I'm going to do the same thing.
Next year, I'm gonna do the same thing, and over
time you can end up giving the entire property while
(16:50):
using the annual exemption amount to be applied towards what
you're doing. So you could give a partial interest over
several years. I had a client a number of years ago.
What they wanted to do. They wanted to buy a
daughter a new home. She was going to get a
mortgage on it. So what they did is they went
and got the mortgage on the home, and then annually
(17:14):
or she got the mortgage on the home, annually, they
would make a gift towards paying off the mortgage. That
gift was based upon the value of the home. It
was just a tax planning strategy. So there's different different
ways to look at perhaps helping your children out if
they're looking at some sort of a home situation. Good
(17:35):
news too, in Michigan, if I make that gift to
my child, I have to ask myself, does that uncap
my property taxes? Because in general, in Michigan, when there's
a transfer of ownership of real estate, whether it's an
entire ent entire transfer or partial, that is potentially a
(18:02):
taxable gift. Well, the good news is Michigan has expanded
the exemption amount. That is the list of people that
you can now transfer your Michigan real estate too. That
will not be an uncapping of your property taxes. So again,
if you're looking at real estate and you're considering making
(18:25):
a gift of real estate to an individual, make sure
you check out and see are they in this new
group of people that you can make a gift to
without uncapping property taxes, because if they're not, what you
need to understand is when you make that gift of
real estate, you're going to be uncapping the property taxes,
(18:47):
which is going to be a greater expense for the
person that you just gave the property too. So they've
expanded it something for you to consider if you're going
to be transferring real estate, and your tax advisor should
be to explain all of that to you. Let's say
you have a minor grandchild man or child, Okay, and
(19:11):
you're looking at well, I want to make a gift.
Let's say I want to make an eighteen thousand dollars
gift to my one year old grandchild. I obviously don't
want to hand eighteen thousand dollars over to buy one
year old grandchild. One of the things that you could
consider doing, and I've talked about this in previous episodes
of the program, So if it's something that's of interest
(19:33):
to you, I invite you to listen to a previous episode,
and that would be an UTMA A count Uniform Transfer
to Minor account. It's basically an account. It can be
set up at a bank, can be set up at
a financial institution, a financial services like a Merrill Lynch whatever,
wherever you're doing your year investing, and you set up
(19:53):
the UTMA count for the minor, and then rather than
handing the eighteen thousand dollars over to the minor, you
put the eighteen thousand dollars into this UTMA account. Again
planning strategy. So if you're looking at doing something like that,
check out an UTMA account. UTMA accounts can hold on
(20:14):
to the money till the person turns eighteen, or you
can actually extend that when the account is set up
to be twenty one, So you can actually set up
an UTMAH account put money into it that the grandchild
would receive when they turn eighteen or twenty one, depend
upon how the.
Speaker 2 (20:33):
Account is set up.
Speaker 1 (20:36):
You might also be familiar with another strategy that you
sometimes hear about medicaid. And sometimes people say, well, let
me start giving stuff away in order to make myself
poor so that I will qualify for medicaid. So it's
not giving things away to reduce federal state taxes. It's
(20:57):
shrinking the size of the estate so that I will
have a small enough estate that I would qualify for Medicaid. Well,
under the current medicaid law, what you need to remember
is gifts made within five years of applying for Medicaid
have to be reported as part of that Medicaid application
(21:19):
because the government doesn't want you to be giving away
your state shortly applying for Medicaid in order to qualify.
So think about in general, you have to report those gifts,
and essentially those gifts could end up disqualifying you for
a period of time from receiving Medicaid, because again, the
(21:41):
government doesn't want you giving your estate away in order
to shrink it for purposes of Medicaid. Not exactly something
SANTA is looking at and making gifts, but it might
be some of Santa's overall Medicaid planning strategy. Now let's
look at a different let's look at the underside. What
about the person who receives the gift from you, whether
(22:04):
it's this eighteen thousand dollars or whatever, the amount, whatever
the asset happens to be. Well, the big problem, potential
problem is if you're giving away an asset that has
increased in value, then we have to look at two things.
So let's say I buy that house for fifty thousand dollars,
(22:29):
and let's just say I give that home to my child,
and it's now worth twice as much, worth one hundred thousand.
I know these numbers aren't actual, but just work the
math with me. So I bought it for fifty, it's
worth one hundred, and I give it to my child.
What have I just done? Well, what I have just
done in making that gift is I pass on to
(22:53):
my child my basis in the asset. In this case,
what did I pay for? Other example, I've got fifty
thousand dollars worth of Google stock that I bought. It's
now worth one hundred thousand dollars, and I give that
Google stock to my child. I'm playing Santa. I give
them that Google stock to my child. Again, I am
(23:15):
passing on to my child my basis in the stock.
What does that really mean? Essentially, what I'm doing is
I'm passing on potential capital gains taxes, because now if
my child takes and sells that stock for one hundred
thousand dollars and their basis is only fifty because that's
(23:37):
what I paid for. They my child is going to
have to pay the capital gains tax on that fifty
thousand dollars gain. So need to be mindful that when
you are gifting away appreciated assets, that you're giving away
the basis in the asset, which could end up passing
(24:01):
on capital gains tax to the person you're making the gift. Now,
why is that so important? Well, another reason other than
it's a tax that you're passing on to the person,
is that under current law, if that same person inherited
that asset from you at the time of your death,
(24:23):
they would get a stepped up basis in the asset.
So let's use that example of my Google stock. I
bought it for fifty thousand. Rather than making a gift
of it right now to my child, I simply put
in my estate plan that when I die, my child
gets the Google stock I die. Let's say the google
(24:45):
stock is worth one hundred thousand dollars. When I die,
my child's basis now in that stock is going to
be stepped up to one hundred thousand dollars, which means
what there is no capital gains tax. So part of
this strategy, when you really get into involving a lot
(25:06):
of gifts that are going to be made, particularly for
perhaps tax planning purposes on your own, you also have
to look at from the standpoint of the person that
you're making the gift too, and what are you potentially
passing on to them, And maybe the gifts shouldn't be made.
Maybe there's a different strategy that I might be used.
(25:29):
In some cases, you might be weighing and measuring the
difference between a federal estate tax and capital gains taxes
versus no capital gains tax.
Speaker 2 (25:40):
Was stepped up basis.
Speaker 1 (25:41):
I had a client that I was working with a
number of months ago who was thinking about giving a
property to their child because they thought that would be
a good thing to do. And by the time they
looked at it and realized, hey, this property has grown
immensely in valid. Tell you over the time that I've
(26:02):
earned it, determination was made my child would be better
off to inherit it than for me to give it
to them because of the stepped up basis when it
in the property at the time that they would receive it.
So a lot of tax considerations oftentimes are going to
(26:23):
come into play when Santa is going to be making gifts,
so be sure Santa understands the tax ramifications of the
gifts he or she is making. Of course, Amander and
(27:05):
I would be honored to have an opportunity to help
you protect your loved ones by putting together your estate plan,
amending a current plan, or assisting you in settling a state,
or looking at some of these tax considerations of the
gifts that you're looking at, and working with your tax
advisor as well. Simply head on over to Doyle LAWPC
(27:28):
dot com. That's the website. There you're going to find
complete information on how do you schedule a consultation with us?
We have virtual consultations that will be by virtue of
a zoom call, or if not going to if you
(27:48):
don't want to do a zoom call, do a virtual
We can schedule a telephone consultation, or we also offer
in person consultations and we now have in person consultations
at our new headquarters in Grand Rapids as well as
our East Lansing location. So all of that information will
(28:10):
be available at the website. You could also call the
office five one seven three two three seven three six
six and tell the operator that you would like to
schedule a meeting with us, and they should be able
to get that consultation scheduled for you as well. Perhaps
you're looking at just an individual document. All you need,
(28:31):
let's say, is a new healthcare power of attorney. Check
out the Legal Store, which again is DOYLEOFPC dot com,
and there you're going to find that there is ability
for many people to order individual legal documents through the
Legal Store online. You'll order it online, you'll pay for
(28:51):
it online, and we will deliver it to you online,
unless you need to have it mailed to you, so
you can order just in individual documents. A very common
one is a certificate of trust. Let's say you're the
trustee a trust and you're trying to sell real estate
that the trust owns and the title company says, hey,
you need to have a certificate of trust. Updated certificate
(29:14):
of trust. Head over the Legal Store. You should be
able to order that document online through the Legal Store.
So again, all of that information, besides general information about
us and what we do, et cetera, will be available
at Doyle Law PC.
Speaker 2 (29:34):
Dot com.
Speaker 1 (29:45):
And that's going to be it for today's show. Again.
One week to finish your Christmas shopping. I hope everything
is going well for you as the holiday approaches. As always, oh,
if you have a comment about the program, a top
that you'd like to have me discuss, or questions that
you'd like to have answered, head on over to Tuesday
(30:06):
with Tom dot com. That's the if you're not already there,
that's the website for the podcast, and you can leave
a voice message. Simply click on the bicrophone talk to
your computer or your phone, leave me a voice message
on question you'd like to have answered or comment whatever
it happens to be, or you could always send me
an email to and that would be Tom at Tuesday
(30:27):
with Tom dot com. Invite you to please follow us
on Facebook and invite your friends and families to follow us.
Speaker 2 (30:34):
That would be Tuesday with Tom.
Speaker 1 (30:36):
And while you're at it, don't forget to follow the
office page Doyle LAWPC and invite your friends and family
to do so as well. And remember too, if you're
not already a subscriber to our monthly e newsletter, you
can subscribe for that either at Doyle LAWPC dot com
(30:58):
or at the Tuesday with Tom dot com site. Sign
up for that we'll be sending out hopefully what you'll
think is valuable information on different estate planning topics and
related topics on a monthly basis. Remember too, that Tuesday
with Tom is available on many, many different services such
as Apple Podcasts, Spotify, Amazon Radio I'm sorry, Amazon Music.
(31:22):
I guess it's called Google Podcasts. That would be iHeartRadio,
and Speaker and you can always ask your smart speaker
to play Tuesday with Tom. And if you're using a
different service for your podcast, try and search to see
if Tuesday with Tom isn't already there, because this is
just as a small listing of the many distribution channels
(31:46):
that we are available on. And if the service that
you are using is not already providing you with access
to Tuesday with Tom, let me know that and I
will find out if we can be added to that
service as well. Well. Thanks again for spending some of
your time with me today, and as always, I hope
(32:09):
that you have an awesome day and an awesome week
in Michigan. And since next week is going to be Christmas,
there won't be a program then, so Merry Christmas to
all of you. There may or may not be a program.
I haven't looked at the following week, but if we
don't have another program, the first coming with New Year's
(32:34):
Best Wish is not only for merry Christmas, but for
a wonder filled holiday and New Year for you and
your family. Stay safe now. Tuesday with Tom has been
brought to you by the estate planning attorneys at Doyle
Law PC. To learn how we can help you with
(32:57):
your estate plan or with settling a loved one's state,
please call us today at five one seven three two
three seven three six six. That's five one seven three
two three seven three six six h
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