A couple sought financial guidance regarding gifting $30,000 annually to their sister over the next five years. They inquired about potential IRS gift tax implications, given their joint finances and one spouse’s use of a separate account for Zelle and Venmo payments.
The IRS considers gifts from a separate account as belonging solely to the individual using that account, while gifts from a joint account are considered gifts from both parties.
The couple’s annual gifts fall well below the IRS gift tax exclusion limit. The annual exclusion is currently $19,000 per individual, or $38,000 for married couples making a joint gift. Therefore, their gifting plan does not trigger gift tax liability. The IRS does not specify the payment method, as long as the gifts are accurately reported.
Financial advisor Charles Schwab offered additional insights. One concern when gifting substantial amounts is the recipient’s ability to manage the funds responsibly. Schwab suggested using an irrevocable trust, allowing the givers to control asset distribution and protect against potential misuse. This is particularly relevant for recipients who may struggle with financial management.
Schwab also highlighted alternative tax-free gifting options. Unlimited payments can be made directly to medical providers or educational institutions for qualified expenses without impacting gift tax limits. This approach avoids gift tax implications and the annual exclusion.
The couple also questioned the use of paper checks versus electronic payments, citing speed and convenience. Experts advise against relying on paper checks, noting their slower processing times and increased vulnerability to fraud. The Better Business Bureau recommends using black gel ink to minimize check alteration.
The article concludes by emphasizing the importance of responsible financial planning when making significant gifts and the availability of resources such as financial advisors and debt counseling for both givers and recipients. The article also notes that while the couple’s chosen method of gifting was appropriate and legal, other methods exist that could allow for more control over the money’s management.
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