When you gift over the annual limit

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Q. I wanted to give my son a gift of $14,000, but the stock I transferred to his name was actually over $14,000 by about $800. How is that money handled?
— Careful gifter

A. You’re going to be just fine.

Let’s be clear at the outset that there are two very different sets of gifting laws that relate to estate planning.

For Medicaid qualification purposes, absolutely no gifting is permitted for five years prior to the application, said Nancy Heslin Reading, an estate planning attorney with Reading Law Firm in Newton.

“I understand that the question says nothing about Medicaid, but this is a constant source of confusion for my clients so I want to be clear,” she said.

The second set of gifting rules that relate to estate planning come from the IRS.

In 2017, the gift/estate tax exclusion is $5.49 million, so many people wonder what the $14,000 limit is about, Reading said. The $14,000 is the most that you can gift in any one year to any one person without having to file an IRS 709 which is a gift tax return.

No gift tax is due — assuming you have not already exceeded the $5.49 million dollar exemption — but if you exceed the $14,000 per person/per year limit, you trigger the obligation to file a gift tax return, she said.

“If that doesn’t seem to make much sense, you are in good company. Most people don’t see the point,” she said. “The $5.49 million dollar limit is a lifetime limit though, so the only way that the IRS will know that you have or have not exceeded the exemption is if you file a gift tax return every time you gift more than $14000.”

The IRS is keeping track.

So you’re talking about an inadvertent transfer of $800 over the $14,000 annual limit.

Reading said you could just file the gift tax return since no tax will be due, or you could consult with a CPA to find out whether, in your particular situation, that gift might be divided between two people.

“After all, you can gift up to $14,000 to as many persons and entities as you want in any one tax year,” she said.

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This post was originally published in October 2017.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.