Hello rollover,
First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due. This is part of what is called the Uniform Tax Credit Act.
In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.
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Thank you rollover and let me know if you have more questions.
Hello again rollover,
It would not take away anything from the trust.
When an individual dies, if that person's entire estate exceeds a certain value, then the estate itself becomes subject to estate taxes. The estate value at which estate taxes apply is currently set at $3.5 million, so estates below that amount are not subject to estate tax.
The value of an estate is determined by taking the current market value of all assets left by the decedent, plus the value of any gifts he has given in his lifetime up to the $1 million. An example of how this works would be this. Say that your father were to report this gift by filing Form 709, and he never reports any other gifts. When he passes away, if he has property and other assets that are worth $3 million, they would also add in the $200,000 he reported in lifetime gifts, and his estate would be given a total value of $3.2 million. In that particular case he is still below the limit where estate tax applies. But if his estate were to exceed the exempt value allowed for estates, then at that time the gifts which he gave become part of his estate, and are subject to estate taxes.
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Thank you rollover
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad