Thanks everyone for your responses. You were all very helpful.

To clarify, the taxation I mentioned from FIL's estate was
NJ tax. Most of the funds transferred directly over to MIL,
however, NJ apparently has some far out estate rules that
other states do not have.

One of them I recently found is a look back on gifts. NJ
apparently adds back to the estate the value of the federal
12K gift if the giver dies within three years of giving it.
Essentially, if MIL died in the next three years, her gifts
to us would be added back to her estate and taxed by the
State of NJ.

I really don't know the details of how FILs estate was set
up, but from what MIL tells us, FIL had his affairs in
order. It was NJ estate taxation that was the huge problem.
She is taking great measures to ensure her estate is set up
properly. In fact, she is moving to another state because
she was so shocked at the amount of taxes NJ took from the
estate.

Thanks again for all your responses. I'm new to US taxation
as I'm from Canada and I'm trying to learn the ropes.

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sparksals[at]0608.zuym.com wrote:

- quote -

Under federal tax law amounts passing to a survivng spouse
escape taxes complete at that time. Most states follow the
federal rule, though I don't know whether NJ does.

- quote -

Don't confuse income tax with gift tax. Gifts are always
free of income tax to the donnee. But any income generated
from the gift is taxed to whomever owns it at the time.

- quote -

She'd have to file a gift tax return, though incur no gift
tax at the time. It would reduce her lifetime exclusion so
that if she made future gifts and/or in her estate there
would be gift or estate tax on any subsequent gifts (in
excess of $12,000 while she is alive).

If FIL died within the last nine months there may be a
better way. Depending on how their estates were set up, it's
likely that FIL's lifetime exclusion amount (varies
depending on the year he died) was not used up and was, as a
consequence, wasted.

If it's less than nine months since he died, MIL can do a
"qualified disclaimer" with respect to amounts she wants to
go directly to her children, and that amount will pass
directly as if she had died first. The money will be
considered not to have ever belonged to her and she will pay
no gift or estate tax on it.

See your tax adviser to determine if this kind of thing can
work for your family.

Stu

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sparksals[at]0608.zuym.com wrote:

- quote -

Not a one-time gift but a lifetime gift. Internal Revenue
Code Sec. 2505(a), sets the lifetime gift exclusion to
$1,000,000 for all years after 2001. This lifetime
exclusion does not include any annual gifts to an individual
that do not exceed the annual limit. Currently, the annual
limit is $12,000 and it is indexed for inflation.

Basically, this means that an individual can gift up to
$12,000 to any other individual in one year and not have to
file a gift tax return or eat into their lifetime exclusion.
Any amount gifted to an individual in excess of $12,000
requires the filing of a gift tax return and will eat into
the lifetime exclusion.

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<sparksals[at]0608.zuym.com> wrote:

- quote -

It's also commonplace when people haven't done adequate
planning.

- quote -

Correct

- quote -

She'd have to file a gift tax return. It wouldn't affect
her income tax return.

- quote -

Kinda, sorta, not really. This is a confluence of the rules
on taxable gifts, the gift tax rates, and the "unified
credit."

When one has enough money to be worried about estate and
gift taxes it's penny-wise and pound foolish to make
planning an amateur event. Tell MIL to hire the best estate
lawyer she can find and let the lawyer help her figure out
the best way to do what she wants with her money. I suspect
that her husband didn't, and you can mention the taxes his
estate had to pay because he didn't.

--
Phil Marti
Clarksburg, MD

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sparksals[at]0608.zuym.com wrote:

- quote -

Yes, any future gain or dividends are taxable to the giftee,
depending on what the gift is invested in.

- quote -

You don't know, and I surely don't, so how can I comment on
this question?

- quote -

Not exactly. You are allowed to gift up to $12,000 each year
to anyone you wish, (and as many individuals as you want)
without having to file a Gift Tax return (form 709). When
you exceed that amount, you file the form. Over your
lifetime you are allowed to accumulate up to $1 Million of
such "taxable" gifts before being subject to Gift Tax. Your
lifetime estate tax exemption of $2 Million is also reduced
dollar-for-dollar by the sum of such "taxable" gifts.

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I'm new here and have a similar question. I hope you can
help.

My husband and I are in a similar situation to the OP of
this thread. My MIL was left quite wealthy after FIL died
last year and she wants to gift her kids more than the tax
free amount of $12K. She lives in NJ and FIL's estate was
heavily taxed, which I'm told is commonplace in that state.
She was at first concerned about the tax implications to us
as she has been told that she can give a one-time gift of
$1M. There are 4 kids, so divided evenly is $250K each.
From your post, it says any amount to the giftee is free of
tax, however, I presume any growth would be subject to
taxation.

Also, depending on where MIL took out this large sum of
money to gift to us, let's say not from an IRA, although I
have no idea from which type of fund whe would take it from,
what would be the tax ramifications to her? Let's assume
it's not an IRA.

Is there such a provision in US tax law about a one time
gift of $1M?

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Steve C wrote:

- quote -

US law is that the recipient of a gift (any amount) is not
subject to tax on the amount. The giftor, on the other hand,
is required to file a Gift Tax return (form 709) and might
be subject to gift tax on any amount over $12,000.

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My mom who lives in the US wants to give me $100.000. I live
and work in Australia and would like to know how this will
be taxed either in the US or in Australia.

Thanks in adveace for any help out there.

Steve C

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