Gift Tax on Money Acquired by Elder Abuse

Gift Tax on Money Acquired by Elder Abuse. When a parent gifts money to children (or others), you may have a gift tax issue.

By Ilyce Glink and Samuel J. Tamkin

We have heard from a number of readers regarding the elder abuse column we published recently.

Reporting Elder Abuse to IRS

Q: I read your recent article about possible elder abuse. Why didn’t you suggest reporting the abusive sibling to the IRS. When they have manipulated a parent out of large sums of money, in particular since the gift is over the annual gift limit established by the IRS?

That sibling would have to claim that amount and pay taxes on the difference, correct? At least it could stop the bleeding by that amount – maybe.

Gift Tax on Money Acquired by Elder Abuse

A: Thank you for your question. You make an interesting point about reporting elder abuse to the Internal Revenue Service. We don’t believe that would be the right way to go. The IRS has bigger issues to deal with and very limited resources.

But let’s take a deeper look: When a parent gifts money to children (or others), you may have a gift tax issue. Current tax law permits anyone to give up to $15,000 per year to an individual without causing any federal income tax issues or reporting requirements.

Let’s say a parent gives a child $100,000. The parent would have no tax to pay on that gift nor would the child have any tax to pay upon receipt. What the parent would have to do is file a gift tax return showing that the parent gave a gift of $85,000 to the child ($100,000 minus the $15,000 annual tax free gift amount). Under current law, the parent has a lifetime limit of gifts equal to $11,700,000. The federal estate tax laws provide that a person can give up to that amount during their lifetime or die with an estate worth up to $11,700,000 and not pay any estate taxes.

Gifts above the annual $15,000 limit that a parent makes over their lifetime count against the $11,700,000 limit. Given this high limit, it’s doubtful that the IRS would get involved. For gifts above this amount, we assume that the parties likely have the number of an experienced estate attorney on speed dial.