Jul 20, 2011

Better file that 709

Making gifts can be a useful tool in your estate planning toolbox. I often talk with clients about how gifting can fit into probate avoidance strategies, minimize estate taxes, or even hasten eligibility for Medicaid benefits. Under current federal law, any gift you make over $13,000 in any given year to any one individual is deducted from your $5M lifetime unified gift and estate tax exemption. You must file a Form 709 for any such gift.

Well, the IRS has figured out that lots of Americans are giving away real estate or land to their children, gratis or well below market value, but not filing the required 709. The IRS, of course, is not happy. Whether failure to report the gift is an innocent mistake or something more nefarious, the feds are determined to track down  offenders. And according to a recent report in Kiplingers, the list of offenders is extensive:  The IRS has concluded that 60% to 90% of taxpayers who transfer real property to family members for little or no consideration do not file the required Form 709. The IRS is examining land transfer records to track down these gifts, and auditing taxpayers who have not complied with the 709 requirement.

If you don't report such gifts, it could be a big tax headache for your heirs after you're gone. Consult your estate planning attorney about gifting and how it fits into your estate plan. And if you have already made a gift over $13,000 to any one individual within any year and failed to declare it, contact your estate planning attorney or your accountant.

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