Family Lawyers in Queens : Guide of Gift Tax between Family Members

The annual exclusion amount is adjusted annually for inflation and applies to present interest gifts. If you give more than the annual exclusion amount to any one person in a calendar year, you must file Form 709 (U.S. Gift and Generation Skipping Transfer Tax Return) with the IRS. Gifts between spouses who are U.S. Citizens are generally unlimited and do not require reporting. Family lawyers in Queens can advise you on whether your intended gifts fall within these safe harbors or require formal documentation.

Beyond the annual exclusion, you have a lifetime exemption amount that allows you to make larger gifts without incurring gift tax. For 2024, the lifetime exemption is $13.61 million per individual. Once you exceed this amount through lifetime gifts, you may owe federal gift tax at a 40 percent rate. Understanding how gifts reduce your estate tax exemption is critical for comprehensive estate planning. Many families work with attorneys to coordinate gifts with their overall wealth transfer strategy.

Strategic gifting can significantly reduce your taxable estate and minimize tax burden on your heirs. By making annual exclusion gifts, you transfer assets to family members at no tax cost while reducing your estate. This approach is particularly valuable for individuals with substantial assets who anticipate estate tax liability. Family lawyers in Queens work with clients to develop multiyear gifting plans that align with their family goals and financial circumstances. Proper documentation and timing of gifts ensure that the tax benefits are preserved and recognized by tax authorities.

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust that allows you to make large gifts to your spouse while maintaining indirect access to the funds. SLATs are particularly useful for married couples seeking to leverage both spouses' lifetime exemptions. When structured properly, a SLAT gift removes assets from your taxable estate while allowing your spouse to benefit from the trust during their lifetime. This strategy requires careful drafting and compliance with IRS regulations to be effective. Family lawyers in Queens can evaluate whether a SLAT is appropriate for your specific situation.

The Surrogate's Court in Queens County has exclusive jurisdiction over estate and trust matters, including disputes that may arise from lifetime gifts. If a family member contests a gift as improper or if the validity of a gift is questioned during estate administration, the Surrogate's Court may hear the matter. The court applies New York law regarding the legal requirements for valid gifts, including donative intent and delivery. Procedurally, disputes in Surrogate's Court follow the Civil Practice Law and Rules (CPLR), with specific provisions for estate matters. Family lawyers in Queens can represent you in Surrogate's Court proceedings related to gift disputes or defend against challenges to gifts you have made.

Failing to document a gift properly can lead to IRS challenges and potential reclassification as a loan or other transaction. If you make a large gift without a written gift letter or proper statement of intent, the IRS may argue that the transfer was actually a loan requiring repayment. This reclassification can create unexpected income tax and gift tax consequences for both the donor and recipient. Proper documentation includes a written gift letter, a statement of donative intent, and records showing the transfer of funds or property. Family lawyers in Queens ensure that all gifts are properly documented to withstand IRS scrutiny.

When you gift appreciated property, such as stock or real estate, the recipient receives the property at your basis rather than the fair market value. This means the recipient inherits your lower cost basis and may face significant capital gains tax if they later sell the property. In contrast, if you hold appreciated assets until death, your heirs receive a stepped-up basis equal to the fair market value at the date of death, potentially eliminating capital gains tax. Understanding these income tax consequences is critical when deciding whether to gift appreciated assets during your lifetime or hold them for your estate. Family lawyers in Queens can coordinate with tax advisors to determine the optimal strategy for your specific assets and circumstances.

Direct gifts are the simplest form of gifting and allow you to transfer assets to family members with minimal tax consequence if you stay within annual exclusion limits. By making annual exclusion gifts each year, you can transfer substantial wealth over time without incurring gift tax or using your lifetime exemption. This strategy is particularly effective for parents and grandparents who wish to help younger family members while managing their own estate tax exposure. Family lawyers in Queens can help you establish a systematic gifting plan that maximizes the annual exclusion for all family members.

An Irrevocable Life Insurance Trust (ILIT) is a common tool used to remove life insurance proceeds from your taxable estate. When you transfer a life insurance policy to an ILIT, the policy proceeds are not included in your estate for estate tax purposes. You can gift premiums to the ILIT each year, and these gifts typically qualify for the annual exclusion if Crummey rights are properly included. The ILIT must be structured to meet specific IRS requirements to achieve these tax benefits. Family lawyers in Queens can draft and establish an ILIT as part of your comprehensive estate plan.