Gift Tax - just double checking

[BulldogTom]

Client's sister was dying and wanted to give some cash to her 6 sisters. Did not believe her husband would carry out her wishes, so before she died she gave my client a check for 150K and asked her to distribute evenly between siblings (25K each). Notation on the check was to distribute to my sisters. Client cashed the check before her sister passed (believing her B-I-L might stop payment on the check). A few weeks later the sister passed and my client distributed 25K each to each of her 5 sisters.

I believe my client (single, darn it) has to file a gift tax return because she accepted the gift in full from her sister and then distributed it. Anyone disagree. I would love for this to be a conduit type transaction where I could say it was a gift of 25K each from the deceedent straight to each sister and my client was merely acting as a conduit. I don't think that would fly.

Any opinions? Thanks

Tom

Lodi, CA

[Pacun]

I thought that the person who receives a cash gift had only one problem: What to do with the money. The receipient, doesn't have to report anything. The person with the big heart is the one that has to file a gift return.

[BulldogTom]

That is true. But the way I see this, my client recieved a gift of 150K (no taxable income, no gift return on that transaction). She then gave more than the 13K excludable amount to others, hense she is now the donor and has a gift tax return filing requirement.

Tom

Lodi, CA

[Pacun]

You should file a gift return for her. It is not a big deal unless she is wealthy and you still do her estate return when she dies.

[SaraEA]

Also don't forget that the donor (or her executor)has to file a gift tax return. Used to be that someone who gave gifts shortly before death had them bounced back into his/her estate. With the advent of the unified credit, that isn't necessary because the tax due on those gifts reduces the estate tax credit. The point is kind of moot this year, as there isn't an estate tax. But there is still a gift tax, so get those returns filed.

I'm hearing that the longer Congress waits to fix this mess, the harder it will be for them to change the law retroactively. I just can't believe that wealth will transfer free of taxes not because of congressional intent, but because of congressional inertia.

[BulldogTom]

The decedent is not my client, and her husband is the executor and sole beneficiary of the decedents estate. He is located in Texas. I don't think he will be coming to me to file his gift tax returns.

Thanks for your confirmation.

Tom

Lodi, CA

[kcjenkins]

I agree with you Tom, your client needs to file a gift tax return. Regardless of the notation on the check, the actual result was that the deceased gave the $150K to your client, who's only obligation at that point was a moral one, not a legal one. File the return to protect her. It might also be a protective act against the B-I-L, should he decide to go after her for somehow defrauding his wife in her illness. Proof that she carried out her sister's request will be supported by the gift tax return.