Ask Terry Questions When must gift tax return be filed?

When must gift tax return be filed?

By Terry Savage on May 28, 2013 | Financial Planning / Retirement

After my mother passed away, my 82 year old father received 50,000.00 on my mother’s life insurance policy. He doesn’t make enough from his social security to claim on income tax. He would like me to keep the money in my bank account. Does he have to file a gift tax form? Do I have to claim that as income? Any advice would be appreciated.

SAVAGE SAYS: He can “gift” the amount to you, and you should ask him to sign a letter acknowledging that he made the gift. If you have brothers and sisters who might “contest” the fairness of this, then you might want to have the letter notarized!? Each person is currently allowed to give $14,000 per year to as many people as he/she wants — without filing a gift tax return. But if he is going to give you the entire amount, you should file Gift Tax Form 709 with the IRS. It is typically filed with the 1040 form — but I see your problem, since he doesn’t file income taxes. Since this could be tricky without a 1040, I suggest you consult a CPA about how to handle this.

One other option might be to place it in a joint account, with you as the survivor. Then at his death, you would be the owner of the account. Technically, this could be considered a gift of “half” the money, but in practicality it is done all the time without filing a gift tax return. And he could write a letter to you every year, telling you that $14,000 of the balance is his gift to you for the year, if you want to keep records!

There will be NO TAXES owed by either of you, because an individual can give away $5.5 million over a lifetime, without incurring a tax. So I assume that’s not the issue here. And since it is a gift to you, you will not owe taxes, either. One other thing you might want to be aware of:? If he gives away money, and then requires Medicaid to pay for custodial nursing care, the state can look back for 5 years to money that was transferred out of his name.


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