If gifts of $13,000 and $15,000 were made to 2 friends, which friend (if any) would be required to declare their gift as ordinary income on their 1040? Once the $5,250,000 lifetime exclusion is reached on gifts exceeding $14,000, is the gift tax rate 55% for the donor? Finally, if a lottery winner died and his only gift was property (via quit-claim deed) valued between $14,000 and $5,250,000, would there be any estate tax owed by anybody?
Bona fide gifts made to your friends would not cause them any income tax or gift tax consequences. The lottery winner (donor) may have gift tax liability (although unlikely) depending on other gifts, etc., but only with respect to the $15,000 gift as it eceeeds the annual gift tax exclusion of $14,000. After the lifetime combined exclusion for taxable gifts is reached, gift taxes must be paid on the subsequent taxable gifts at a current rate of 40%. The last question is really an estate tax question. The answer depends upon the lifetime taxable gifts that were made, whether the person inheriting is a spouse, and potentially other factors. If the total of taxable gifts and the taxable estate are less than $5,250,000, no estate tax would be owed.
Anyone with significant assets, should have a will and an estate plan. Further, if you have significant assets you should develop a relationship with an attorney and a financial advisor, preferably a CPA. Proper legal and financial advice can save you significant amounts of money over time with a relatively minor outlay for professional services.
Personal Injury Lawyer
These, as you pose them, are questions for a CPA not a lawyer.
The annual gift tax exclusion is $14,000 for 2013, and this annual exclusion can change each year since it is adjusted for inflation. However, gifts that an individual receives are not classified as taxable income to the recipient (regardless of the amount). Gift tax rates, like income tax rates, are graduated (i.e., they increase as the amount of the taxable gift increases). The minimum gift tax rate is currently 18% for taxable gifts of $10k or less, but max out at 35% for taxable gifts of $500k or more. Note that the lifetime gift tax exclusion is "unified" with the estate tax exclusion -- so if you use up all of the lifetime gift tax exclusion none of your estate will be shielded from estate tax. See IRS Publication 950 for more info (link enclosed).
The answers you seek are very fact specific. For example, did the lottery winner make any taxable gifts other than the ones specified? How were the gifts structured? Note that the annuity payable from lottery winnings cannot be transferred at death -- the annuity stops once the winner dies. Further, only real property can be transferred by quit-claim deed. Personal property should be transferred during life ("inter vivos" gifts) or by a will.
This is definitely not a DIY project. You would be best served by hiring an estate planning attorney and a CPA to adequately structure your estate and gift plan.
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Oscar Javier Ornelas
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Mr. Ornelas has given you excellent advice. It sounds like you are the lottery jackpot winner. Thus, it would behoove you to hire a good estate and tax planning attorney who can answer your questions and arrange your affairs so as to minimize your gift and estate taxes.
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.