My wife’s grandmother, who is 94 years old, annually gives each of her nine great-granddaughters a fifty dollar Chanukah check. “I get social security” G.G. (short for great-grandmother) laughs, “so each of my beautiful darlings should also get social security.” The kids, of course, joyfully cash the checks to spend the money during the holidays.
If you are wondering why the great-grandsons don’t receive such a gift, don’t worry. There are no great-grandsons. On my wife’s side of the family (including our children and her two brothers’ children) we can field a full baseball team but there are no boys on the roster.
If you are so fortunate to give gifts to your children, grandchildren or even great-grandchildren, and if you are doing so with an eye towards estate tax savings, make sure your beneficiaries actually cash the checks prior to year end. Recall that we can gift tax free as much as $12,000 to each beneficiary this year. We can do this by gifting cash, stocks and bonds or anything of value. So long as the cumulative gifts that we give do not exceed $12,000 per beneficiary during the calendar year, the gifts are considered tax free and are not counted towards our lifetime gift tax exclusion.
It is important to note that in order for the gifts to qualify as tax free for the calendar year 2008, any transfer must actually occur before the end of the year. This means that if you are transferring stock certificates, that the certificates must change title by December 31st. If you have mailed a check to your child or grandchild they must actually cash the check by December 31st. It is not enough that you have mailed the check or that they have actually received the check.
If your estate is ever audited, the IRS will review your check register and the cancelled checks (or the posting date on the bank statements) to verify that the gift was made and actually cashed prior to year end. If it wasn’t then it counts towards the next calendar year, which could cause problems if you give another gift in that next year. In such event, it is likely that you will have consumed a portion of your exemption from gift tax and be required to file a federal gift tax return.
Also remember that payments applied towards insurance policies in many irrevocable insurance trusts ILITs may also count towards the annual gift for each beneficiary. You’ll know this is the case if the trustee is directed to send the beneficiary’s a “Crummey notice” of the contribution each year. So when making the cash gifts at the end of the year figure in the amounts you have already given in any other form.
Next year, by the way, the amount that you can gift each beneficiary is expected to increase to $13,000.
Merry Christmas, Happy Chanukah and a great holiday season to everyone!
©2008 Craig R. Hersch