I understand that gifts of up to $10K are not taxable. But for whom? The gift giver, the lucky recipient, or both?

Also, any ideas about the tax consequences of receiving the proceeds of an annuity as a death benefit. Is the money received considered taxable income to either the IRS or the kalif tax collectors?

Thanks in advance.
AR i.t.w's

PS: I tried the legal foruw first but didn't get a reply. :-(

There is no tax on the giver, ever, considering they already paid tax on the income of that money. The $10K limit means that a parent can gift a child that much each year with no tax consequences to the child.

Any death benefits are based on the value of the estate as a whole. I believe the floor is $500K, but I might be wrong. What that means is that if someone's estate is worth less than $500K at the time of their death, it gets distributed tax free to the heirs. If it is over that, the gov't taxes the amount over that at a certain rate before distribution.

Hope this helps.

Just going through this with my mothers estate.  The floor is $600,000 (might be $650,000) I don't recall what the lawyer said, but I do know it starts with a '6' [:)] - not that mom had that much mind you, but that means we don't worry about it when the house sells.

BTW, any of you Wisconsin guy's want a house on the water?

There's a process called "generation skipping" that can be used in specific circumstances to avoid a LOT of taxes.

Let me clarify the 2nd part of my question.  

According to the lawyer handling the probate, the annuity benefit is seperate and not considered part of the estate.  I'm trying to figure out if I'll have to pay taxes on the death benefit or not.  I'm getting conflicting answers and I can't reach my tax guy...

AR i.t.w's

jhasz, I'm sorry to hear you lost your mother.

Tax already taxed money, not right.

We should get rid of this tax, or up the floor.

Ok then, I'm a commissioned salesman who's new to the arcane sciences of commissions taxation.  The buzzword they use around here is that it's a gift tax and unlike the income tax I pay on my hourly earnings.  I don't think it's a gift tax, but they sure take a big chunk of it out of my commission. Why?  What new tax am I subject to?  Anyone know?

They're feeding you a bunch of B.S. ... commission is income... you're being paid it because you worked at it long enough that you sold something for them...

It isn't a gift... I'm not a tax guy, but my dad was a saleman for many years, and while I don't any more, I did do some commission sales myself - and believe me, with what it takes to sell something, it's not a tax...  

Now as for why the taxes coming out seem so large - it could be that they are "annualizing" your commissions, and if they are at all large enough, it may put you in the top tax bracket for that "period"... f'r instance...

Your salary is $500/week, earning you about $25K/year... not a bad bracket to be in ... but after working on it for 6 weeks, you make a sale that nets you $1000 commission ... then they annualize it... BOOM!  you're in the $75,000/year tax bracket and taxes are withheld accordingly...  Next week, they drop back down - unless you can duplicate that feat...

AR_in_the_woods... thanks, it was about 6 months ago now, but we're still waiting for the house to sell...  I hope you get the info you're seeking.... it can be a pit dealing with it all.

Estate tax.  600,000 exemption per individual, the issue is that most married individuals tend to hold everything jointly, so when one dies, the exemption dies with them.

Insurance tax.   NOTE:  INSURANCE PROCEEDS ARE CONSIDERED PART OF THE ESTATE IF OWNED BY THE INDIVIDUAL THAT DIED.  A rather interesting item is that many people do not understand that.  Lets say that you have a 500,000 estate with a 250,000 life policy.  When you die, your estate is now 750,000 with 150,000 able to be taxed.  

Normally, proceeds of insurance policies are not taxed as income to the beneficary, but there are exceptions (those policys from your employer that are paid by either pre-tax or employer dollars.)

Hope this helps.

FCKN' IRS wants like $300,000 from my grandfather's estate.

Bloodsucking leeches.

Actually, there are a couple of great tools out there to keep married individual's estates from being taxed to heavily, and keep the total 1.2 million exemption.  For those of you who are married, I would wholeheartily suggest investigating a Living Trust, one for each spouse.  By funding the trusts, and making each other the backup-trustee, both exemptions are kept.

For those who have extremely large estates (over 1.2 million), one of the best ways of avoiding income tax is the establishment of an irrevocable life insurance trust (ILIT for short).  A lot of people are uncomfortable with it since anything put into the trust becomes the trust's property, but when funded with life insurance (such as second-to-die - a fav in estate planning and usually well worth it), since the policy is owned by the trust, it is not included in the deceased estate.

Ulysse_Nardin_1846 thank the Demoblows for that, they think everyone's money are belongs to them. Your grandfathers money belongs in his family members pockets, not in some city demoblow program. Thieving commie Democrats suck.  

Be wary of seeking advice on such a complicated legal matter online.  I assure you that estate and gift tax law is riddled with hidden pitfalls.

To answer your question, both parties are liable for the tax.  The giver is supposed to file a gift tax return and pay it.  However, the IRS may seek out and collect from the recipient if this is not done.  Note that certain transfers are exempt from tax and filing requirements.  For instance, transfers to a spouse are generally tax free (problematic if spouse is not a U.S. citizen, though).  Also certain educational and health care expenditures paid directly to the provider may be tax exempt.  Basically, I would advise you to consult a lawyer or accountant for really significant transfers, particularly those that might get noticed.

There is a lifetime exemption on Estate and gift taxes up to a certain amount.  There is an automatic yearly increase written into the code for this amount (I think it will be a million in 2006).  When you give a gift exceeding $10K you probably won't pay any tax; you will merely erode this lifetime exemption by the amount of the gift over 10K.  Basically, it may increase the amount of tax paid by your heirs.

Generation skipping is NOT an effective way of avoiding the tax.  On the contrary, if a taxable gift or bequest is made to a person a specified amount younger than yourself, the money will be taxed as if it had been transferred twice.  Note that there is a separate exemption for Generation Skipping tax that complicates matters.

The famous $10k yearly exemption only applies to transfers of present interests.  This means that trusts must be prepared carefully to allow the recipient a right to immediately withdraw the money. If you want a trust, see a lawyer.

Also trusts can be used to aggregate the lifetime exemptions of two spouses.  This is useful since spouses usually die at different times and the decedent wants the spouse to be able to use the funds while still gaining the exemption when the spouse dies.

The rules on ownership of life insurance are complex and REALLY easy to screw up.  Please use a lawyer before trying this approach.

On a final note, gifts an bequests are generally not taxable as INCOME to the recipients.  The income tax code exempts from income most purely donative gifts.  I suspect that CA law is similar, but I'm not sure.

My advice to you is not to treat any advice (including mine) as gospel.  If you are facing a really significant tax issue, you might want to contact an attorney.

To answer your second post, I would probably need more info.  A death benefit would probably not be income though.  Note that estates must pay income tax on money accrued after death.

Ya what ever happened to the "death tax" revision bill?  Even Dianne Einsteiner favored the bill because she and her husband are filthy rich.

Didn't past congressional muster huh?

It wouldn't have been retroactive though.  He died last year.

[shock] "steal" it back! Whats the difference??? [:D]