Gift-Giving Can Become a Taxing Matter

As you finish your last-minute gift shopping, make sure that you don’t accidentally add the IRS to your list by buying a gift worth more than $10,000.

Most of us don’t have such worries, but just in case you’re planning to give someone a new car, or a full-length mink coat, you should remember that gifts of more than $10,000 are subject to federal tax.

Gift taxes are payable by the giver, not the recipient of the gift. Thankfully, the federal tax laws do allow you to give unlimited gifts to your spouse or a tax-exempt organization. (So you can’t use the tax law as an excuse when you explain to your spouse why he or she is not getting a new car.)

One of the reasons gifts are taxed is to make certain that people don’t use them to avoid death taxes. Federal death taxes apply to inherited wealth in excess of $600,000. If gifts weren’t taxable, you could simply avoid death taxes by giving all your money away on your death bed.

A Way to Double Up

You can double your gift to $20,000 without paying taxes, by giving it together with your spouse, because each of you has the same $10,000 limit. And you can also double your gift by giving it to two people, say, your son and his wife, because you can give $10,000 to each of them tax-free.

Denis Clifford, the author of several estate-planning books published by Nolo Press, offers one tip for people who want to give their children money to buy a house or start a business: “To reduce gift taxes, give the money over two calendar years,” he writes in Nolo News, a quarterly guide of practical legal information. “You can give, tax-free, $10,000 on Dec. 31 and another $10,000 on Jan. 1.” (To subscribe to Nolo News ($7), call (800) 445-NOLO outside the 415 area code.)

Many tax lawyers advise regular gift-giving to those who have estates worth more than $600,000 as one way to lower potential death taxes. Sometimes this takes the form of large loans, payable over a number of years. Each annual payment is forgiven as it comes due.

But if you have an estate that large, it would be a good idea to visit an experienced estate lawyer before things start getting too complicated.

Legal Brief

Think there are too many lawyers? You’re not alone. Listen to what one law school dean had to say on the subject: “We have more lawyers today than there is a legitimate need for. . . . The truth is that we are simply being swamped with aspiring young lawyers, most of whom will necessarily and within a few years after admission drift into real estate, insurance and related lines, and that is not a process calculated to help the reputation of our profession.”

Only thing is, that was written in 1928 by the then-dean of Stanford Law School, M. R. Kirkwood. I guess he was ahead of his time.

Attorney Jeffrey S. Klein, The Times’ senior staff counsel, cannot answer mail personally but will respond in this column to questions of general interest about the law. Do not telephone. Write to Jeffrey S. Klein, Legal View, The Times, Times Mirror Square, Los Angeles 90053.