Best Family Lawyer in New York : Gift Tax between Family Members

The IRS allows each individual to give up to a specified annual exclusion amount per recipient without filing a gift tax return or using any lifetime exemption. For 2024, the annual exclusion is $18,000 per recipient; this amount increases periodically with inflation. Additionally, a lifetime gift tax exemption permits individuals to transfer up to $13.61 million (as of 2024) over their lifetime before incurring gift tax. Married couples can combine their exemptions and exclusions through proper election. Understanding these limits is critical when making family gifts, particularly when transferring real estate, business interests, or investment accounts. For detailed information on family gift tax strategies, consult resources on Family Gift Tax planning.

Not all transfers between family members are taxable gifts. Payments for tuition or medical expenses made directly to the provider, transfers to a spouse (if a U.S. Citizen), and charitable donations are generally excluded from gift tax. However, loans between family members, transfers of business interests, and gifts of appreciated securities may have complex tax consequences. A best family lawyer in New York will evaluate your specific family situation, including the nature of the transfer, the relationship between the parties, and the value of the property involved, to determine whether gift tax applies and what documentation is required.

New York estate tax applies to estates exceeding the state exemption threshold. Although gift tax does not apply in New York, gifts made during your lifetime reduce the value of your taxable estate at death, which can lower New York estate tax liability. This makes lifetime gifting an important estate planning strategy for high net worth families. However, improper documentation or structuring of gifts can create disputes with the New York Department of Taxation and Finance or the IRS. A best family lawyer in New York can help you document gifts properly, file required federal forms (such as Form 709), and coordinate your lifetime giving strategy with your overall estate plan.

Gift tax reporting requires timely filing of Form 709 with the IRS if you exceed annual exclusion limits. Failure to file can result in penalties, interest, and potential loss of the lifetime exemption benefit. New York does not require a separate state gift tax return, but your federal Form 709 may be relevant to state tax authorities if they audit your estate. Proper reporting ensures that your gifts are correctly applied against your lifetime exemption and prevents future disputes over the value of your estate.

Accurate valuation of gifted property is essential for tax compliance and IRS audit defense. If you gift real estate, business interests, or other illiquid assets, you must obtain a qualified appraisal to support the value reported on Form 709. The IRS can challenge valuations if they appear inflated or lack proper documentation. A best family lawyer in New York will ensure that all gifted property is properly appraised, that gift agreements are drafted clearly, and that contemporaneous documentation supports the reported values. This careful approach protects your family from future tax disputes and penalties.

The New York Surrogate's Court supervises estate administration and resolves disputes over trusts and gifts made in contemplation of death. If a family member challenges a gift as invalid or claims the donor lacked capacity, the Surrogate's Court may be asked to determine the gift's validity. New York law requires that a gift be supported by clear and convincing evidence that the donor had capacity, understood the nature and extent of the transfer, and acted free from undue influence. The Surrogate's Court in each county (New York County, Kings County, Queens County, etc.) follows specific procedures for filing claims, serving parties, and conducting hearings. A best family lawyer in New York with experience in Surrogate's Court can navigate these procedures, gather evidence of gift intent, and defend or challenge gift validity on behalf of your family.

If the IRS audits your gift tax return or challenges a valuation, you have the right to administrative appeal through the IRS Appeals Office before pursuing litigation. The audit process typically begins with a notice of examination and proceeds through document requests, interviews, and a preliminary determination. If you disagree with the IRS position, you can request an Appeals conference to present your case. A best family lawyer in New York working with a tax professional can represent you in these administrative proceedings, present evidence of proper valuation and gift intent, and negotiate a resolution. If the IRS determination is not satisfactory, you may file a claim for refund in the U.S. District Court for the Southern District of New York (which covers Manhattan and surrounding areas) or the U.S. Court of Federal Claims. Understanding these procedural options ensures you can effectively challenge an unfavorable tax determination.

• Form 709 must be filed by April 15 of the year following the gift (or by the extended deadline if a timely extension is granted)
• Form 706 (estate tax return) is required if the estate exceeds the federal exemption threshold at death
• New York Form IT 205 may be required for certain New York estate tax matters
• Trust accounting statements and beneficiary notices must be provided annually or as required by the trust document and New York law
• Appraisals and valuation reports must be retained for at least seven years following an audit

Gifts between family members should be integrated into a comprehensive estate plan that includes a will, durable power of attorney, health care proxy, and trust arrangements. A best family lawyer in New York will coordinate your gifting strategy with these other documents to ensure your overall plan is consistent, tax efficient, and reflects your family values and goals. Regular review of your estate plan is important as tax laws change, your family circumstances evolve, and your assets grow or shift in composition. By working with a best family lawyer in New York, you ensure that your family transfers are properly structured, documented, and aligned with your long term objectives.