How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Richard Your Own Question
Richard
Richard, Attorney
Category: Estate Law
Satisfied Customers: 54018
Experience:  29 years of experience practicing law, including tax and estate planning.
17027240
Type Your Estate Law Question Here...
Richard is online now
A new question is answered every 9 seconds

What are the limits on gifting your kids? When you gift, say

Customer Question

What are the limits on gifting your kids? When you gift, say you want to gift them 28,000. because they are buying a home and I want to help them out. Do I have to have that 28,000. in my savings account? I own a lot of Ag producing property, but the way
we have it set up is owners are shareholders and work for the farming corporation. So I am worth a lot on paper, but don't have a steady stream of cash on hand to gift. Can I gift 28,000. to my kids and defer it towards the amount you can give away in a lifetime
to each child? Can I borrow from the corp cash (my part) and at the end of the life of the corp or we decide we want to go our own ways.....if I don't have the money on hand to pay back the corp for the money that I gifted my child, can I just give up some
property to my corporation partners for payment?
Submitted: 1 year ago.
Category: Estate Law
Expert:  Richard replied 1 year ago.

Good morning. My name is ***** ***** I look forward to helping you.

The gift tax laws are as follows....Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000 in a year, each person has a $5,430,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,430,000 in gifts over and above the $14,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,430,000.

You can make gifts in cash or non-cash assets. Also, you can make loans now and then later forgive the loans as a gift. If you have other owners of your corporation, you are best not to make gifts to your kids from the corporation; rather, have the corporation make gifts or loans to you, and then you make a gift or loan to the children.

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as OK, Good or Excellent (hopefully Good or Excellent). I thank you in advance for taking the time to provide me a positive rating!

Customer: replied 1 year ago.
Ahh....so say I want to loan my child 500,000. for a home. Can I have the corp gift me half of that money and loan me the other half? What are the tax repercussions on that move? Can I my husband and I gift my son & his wife 52,000.00 then that brings their loan down to 448,000. then can we gift my 1 grandchild (son of my son) another 24,000.? to make a total of 76,000. which will bring their loan down to 424,000.? Is their a different catagory for grandchildren? or is it just a flat 12,000. per ones child per year excluding grandchildren ?
Expert:  Richard replied 1 year ago.

Thanks for following u. Do you and your husband own 100% of this corporation? Is this an S Corp?

Customer: replied 1 year ago.
My husband owns 33,3% of the corp. He has two brothers that own the other 66.6%. It is a C corporation. They have all their land in this C corp which is not where you want land in because of the double taxation to us. They are trying to switch all land into a S corp, but as you know this is a lengthy process. I'm not sure why they chose to do this 30 years ago. So I'm not sure if I own half of my husbands 33.3%. I don't think I do because this corporation was created by their father to make his seven children/shareholders of this corp. Only 3 children are active in the profits and losses of this corp. The other 4 have their own properties with their mates, only to be active in the family limited partnership with their mom, who is still alive (95 years old). Within that FLP, their were inheritance properties for the 7 children, but they have distributed with the children paying rent per acre to their mom until the lease expires or she passes. They keep the FLP lease up to date for financial and business reasons.
Expert:  Richard replied 1 year ago.

When there are multiple owners, one owner can not simply gift himself money from the corporation. The others have to consent to a payment of some sort and there needs to be a basis for it. So, the corporation could redeem some of this stock, make him a loan, or something similar to get him the money. A loan would not be taxable; a redemption would result in capital gain to the extent the price paid is in excess of the basis. Then, you can loan and/or gift the money to your children. Given that you and your husband each have a life time exemption of $5,430,000, you really don't need to spread out gifts to come within the $14,000 annual exclusion amount.

Customer: replied 1 year ago.
Okay Richard.... so what were trying to do is bring down there loan amount as much as possible that they are able to pay the interest only for a couple of years till they get the hang of running a farming company and a home in the country. Then they plan to start paying principle & interest when they start making extra money on their farming part ( in about two years time). We'd like to fully extend our gifting this time around with no more gifting for long while. Can we also gift our 1 grandchild along with this 52,000. gift?
Expert:  Richard replied 1 year ago.

Yes, you can gift the grandchild a gift. But, here's the thing, if that grandchild is a minor, whoever is the guardian of that grandchild is going to have to get something in exchange for then turning the money over to his/her parents. Otherwise, when the grandchild gets older, he/she is going to be entitled to understand why his guardian simply gave his/her money away rather than use it for the grandchild's benefit.

Customer: replied 1 year ago.
when you say "a redemption in capital gain" so if the price paid is in excess of the basis...please explain with my figures. Thanks.
Expert:  Richard replied 1 year ago.

A redemption of his stock would be a sale of his stock. So, he would have gain equal to the sale price less his basis. His basis is the purchase price of the stock or if he inherited the stock, the value at the date of inheritance.

The tax laws concerning taxation of long term capital gains are as follows:

0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

In addition, starting in 2013, capital gain income became subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.

Customer: replied 1 year ago.
if my son and his wife create a document stating that amount that the child handed over will be reimbursed to him, by his parents that borrowed the money 17 years ago (He' not quite 1 years old) be reimbursed to him towards his college education, and have it recorded. Will this work?
Expert:  Richard replied 1 year ago.

Yes, that would be acceptable.

Customer: replied 1 year ago.
Would there have to be interest added onto that for the time used (17 years)? at what percent for the 17 years?
Expert:  Richard replied 1 year ago.

Yes, interest would have to be charged at the Applicable Federal Rate, which is set by the IRS. You can find the Applicable Federal Rate published by the IRS at the following link: https://apps.irs.gov/app/picklist/list/federalRates.html

But, I'm not sure why you would want to go to this trouble when you can give your children not only the $14,000 per donor per donee, but IN ADDITION to that, you each gift up to $5,430,000 before you would owe any gift tax. Why not just give it to your children directly?

Customer: replied 1 year ago.
Were all for giving it to them directly, if all the rules are in our favor. We will be closing escrow in 10 days. We will be loaning them the entire 500,000. A Deed of Trust will be created with my husband and I holding the note receivable for the loan. So can my husband and I automatically discount the loan to 424,000. right off the bat and have the note read as them owing us 424,000. in 30 years with a 3.00 interest rate?
Expert:  Richard replied 1 year ago.

No, you wouldn't be able to do that unless they were paying off the loan all at once.

Customer: replied 1 year ago.
how much can we take the loan down from 500,000. at 3% for 30 years, right off the bat with us holding the note? we are in the 28% bracket and I'm 55 years old and my husband is 59 years old.
Expert:  Richard replied 1 year ago.

The present value of $500,000 to be paid off over 30 years at 3% discounted at 3% is $500,000. So there is no discount. You can simply make the gift of $500,000 and neither of you will owe any tax. Or, you can loan it to them, and then forgive the payments each year, and neither of you will owe tax on the gifts. It's as simple as that.

Customer: replied 1 year ago.
Richard... i know I sound like a big dumbbell, but up until 4 years ago, I knew nothing of the corporation. My husband d was to be tending to the dynamics of the corp, but he was too busy doing his own thing. He doesn't really care to be current on whats happening in the corp...he's content where he's at. In the meantime, our kids are needing some assistance and I'm the one having to figure this all out because my in laws in the corp are not too informative of my corp questions and it seems that my husband is somewhat intimidated by them. Not I. I will bring up any info I know before them to get to where I want to be and what I need from them. This is why I may be redundant and hard headed at understanding the whole concept of gifting. I find it hard to believe that we can simply give them the whole 500,000. or the maximum amount of 76,000. per year (28,000 per child plus another 14,000. for grandchild) and not get hit up hard in our taxes the next year. Remember the corp loaned us the 500,000. at 2.00% for 3 years. We plan to pay back in land sold money if we don't have the means of paying back at that time. So what do you say?
Expert:  Richard replied 1 year ago.

You can make gifts up to $5,430,000 each without incurring any gift tax. This is in excess of the $14,000 annual exclusion gift each donor can make per donee. So, you can give them the entire $500,000 with no gift tax consequence. :)

Customer: replied 1 year ago.
Hi Richard....If I loan my kids 520,000.to buy their home and I hold the Note and
Deed of Trust...Can this deter from my husband and I getting a loan of our own down the road?
Expert:  Richard replied 1 year ago.

Good morning. It's not likely because the note is an asset just like cash. But, the note is not as liquid as cash and if the $520,000 depletes your liquid asset to the extent that it impacts your ability to make the required payments on a prospective loan, then the lender may be a bit more hesitant to extend a loan to you.