families and money

Clearing up the confusion over the Gift Tax Law, updated for 2018

There are many confusing tax laws, but the one that seems to generate the most misunderstanding is the gift tax law.

Many are aware that gifts can be made up to $15,000 in 2018, (this amount is periodically adjusted for inflation) with no tax consequences – but beyond that it’s fuzzy. A client asked me if she would have to pay tax on a $100,000 gift her parents were planning to give her to buy a house. The answer is no.

Here’s the low-down on the gift tax law:

1. Anyone can make gifts of up to $15,000 (in 2018) to as many people as they choose without any tax implications. This gift is called an “annual exclusion gift”- meaning the gift is tax-free for the giver and the receiver.

In each following year,  the donor can start all over again giving gifts up to the annual exclusion amount to as many people as they choose. The gift can be either cash or goods. The gift does not have to be to a family member, it can be to anyone the giver chooses. In addition, married couples can each give $15,000 a year, so your grandchild could receive $30,000 from you and your spouse in a given year.

2. If a donor exceeds the annual exclusion ($15,000 in 2018) to any one person, that is also a tax-free event – unless the gifts go over the generous lifetime estate and gift tax exemption of $11.18 million per person.  A minor annoyance:  Form 709 – United States Gift Tax Return – must be filed with that year’s tax return. But NO tax is due.

3. The recipient of said gifts (of any amount) does not pay tax on the money ever, at all.

If a gift tax return (Form 709) is required, it will be due on April 15 of the year following the year in which the gift was made.

Let’s step back and define what a gift is for IRS purposes:  It’s something that is given and nothing is received in return. It is complete as a gift. Loans are not gifts.

What are some of the reasons people give gifts?

  1. They are generous and kind.
  2. They want to help a loved one with expenses such as a down payment on a house,
    education costs, or a vacation.
  3. They are very wealthy and want to reduce the size of their estate and therefore, estate taxes.
  4. They know they won’t spend all their money during their lifetime and want to
    share it with their loved ones before they die.


1. You and your spouse decide to give $15,000 each to your four grown children for Christmas. The total gift amount is $120,000. No tax is due and no gift return is filed.

2. The Brown’s gives $200,000 to their daughter Sally, to assist in the purchase of her first home. A gift tax return (Form 709)  for $170,000 ($200,000 –  $15,000 x 2) would be filed with that year’s tax return.  In subsequent years, any gifts the Browns’ give over the exclusion amount will be added to the $170,000.

How the estate and gift tax are tied together:

Let’s say the Brown’s, over their lifetime, gift $1,000,000 in gifts over the annual exclusion amount. When they die, the $1,000,000 will be subtracted from their lifetime estate and gift tax exemption – $11.8 x 2 =  $22.36 million – $1 million  = $21.36 million or $10.68 million each.

It’s obvious that very few but the most wealthy will exceed the estate and gift tax exemption, and in consequence few people pay estate or gift tax. This wasn’t always so. The basic exclusion amount (or applicable exclusion amount in years prior to 2011)  was $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), and $5,490,000 (2017).

Spousal gifts and portability

Spouses fall under different rules when it comes to gifting and estate or gift tax. The unlimited marital deduction allows you to gift any amount of money or property to your spouse without incurring either the federal gift tax or a state gift tax if you live in a state that imposes one.

In addition, in 2013, Congress passed the American Tax Relief Act of 2012 (“ATRA”). One of the key provisions of ATRA is to make permanent the portability of the applicable exclusion amount between spouses, which was enacted by Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Portability allows the first spouse to die to transfer his/her unused estate tax applicable exclusion amount to the surviving spouse, who can then use it for his/her gift or estate tax purposes. The key is to be sure to file an estate tax return at the first spouse’s death to elect portability.

Gifts made directly for education or medical expenses qualify for exclusion.

Payments that you make on someone’s behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes. This means that you can pay for a child’s tuition in the amount of let’s say $20,000 and if it is paid directly to the institution, you can still give that child $15,000 that year.

However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion.

In the case of 529 contributions, these gifts are considered part of the annual gift exclusion.  So you can give $15,000 a year to a 529 plan (or you can also give 5 years in one year or $70,000 and use up 5 years of the exclusion amount).  Note, these contributions are not made directly to an institution.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful and educational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

Clearing up the confusion over the Gift Tax Law, updated for 2018 Read More »

Do You Know You Have A Money Personality?

Do You Know You Have a Money Personality?

Do You Know You Have a Money Personality?

We’ve all developed money habitudes and attitudes over the years – learned from our parents and other adults, advertising messages, our siblings,  and our peers. Some of the information we absorbed about money may not be serving us so well now.

For example, if you were raised in an atmosphere of scarcity, you may spend your whole life craving things you can’t afford and you now overspend to get them. On the other hand, if you grew up in abundance, you may expect things will always come easily to you. If your mom was a spendthrift, you may become one too or, you may overcompensate by becoming a miser.  If your dad procrastinated about important money decisions and took the attitude “things will work themselves out”, you may find yourself taking the same approach.

Ever wonder why you procrastinate about financial matters? It may be due to your deep-seated money personality.

My Money Story

My mother and father were extremely frugal, especially my father. He didn’t want anything. Buying him a gift was torture because it was impossible to figure out what he would like – except peanuts, he loved peanuts.  So my siblings and I would end up buying him canisters of Planter’s nuts for his birthday, Father’s Day, Christmas.  His frugality rubbed off on my mom. Going out to eat with her was challenging. She’d look at a menu and always order the cheapest thing on it – or a side salad.  She would do the same thing when shopping for clothes – in her mind, nothing was worth the price when you compared it to what you could make it for yourself.

We kids would only get the “necessities” – basic clothing and shoes (thankfully we wore school uniforms!) and no spending allowance. So, I learned early on that if I wanted the “extras”, I needed to find a way to buy them myself. This was probably a good thing, as I became self-sufficient at a very early age. But I also rejected the frugality of my parents and have been known to indulge myself on occasion. I’ve worked hard to find a good balance between being prudent and being extravagant.

Can you change your money personality?

I interviewed a graduate of The Money Coaching Institute based in California, about her insights about money personalities.  She said, “If we don’t pay attention to our money personalities they will act out in louder and more extreme ways. For example, the shopping sprees become longer and more expensive because you can’t quite fill the emotional hole you are trying to fill or the anger towards money grows until you blame it for everything wrong in your life.”

In my financial planning practice,  I find that the more I know about my client’s money type or personality, the better I can serve them. To that end, I have each client complete a money personality and financial satisfaction questionnaire which seeks answers to such questions as:

  • What keeps you up at night (or at least feeling anxious) when it comes to your personal finances?
  • If there is one thing you could change about your personal finances, what would it be?
  • If you had more money to spend, what would your spend it on?

If you think that you may be acting in ways that sabotage your chance of financial success and it’s become a pattern  – read, sign up for a workshop, talk to trusted friends or advisors, or engage a money coach. There are resources available to help you.

Below are a few books and ebooks (including one I wrote myself, called The Happiness Spreadsheet), that can help you discover your values and ideas about money.


Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

Do You Know You Have A Money Personality? Read More »

“Making Home Affordable”

The Irrepressible Trudy -
The Irrepressible Trudy

Lots of women know their hair stylist almost as well as they know their closest friends. That’s why we don’t dread haircuts the way men do – we actually look forward to the 1-2 hours when a friendly person will make us beautiful with the added bonus of a good  heart-to-heart. No staring glumly at the mirror until it’s done for us! Topics of conversation in a hair salon run from love life to clothes, movies to food, and of course, my personal favorite, money.

Meet Trudy
So without further ado, please meet my hair stylist, Trudy. She’s 40-ish,  a single-mom (of a 13 year old daughter), a homeowner, a fashionista, and, as you can tell from this photo, irrepressibly vivacious.

On my last visit, we got into a chat about money because Trudy had just completed a loan modification and was more than happy to share the details with me. I was very interested because I knew banks were considering loan modifications, but hadn’t heard of anyone actually getting one.

Trudy’s story is typical of many American homeowners who were enticed by loans that “magically” made debts disappear and lowered mortgage payments.

Here’s what happened. Trudy bought a condominium in Hercules, California in 2003. She paid $248,000. She put $50,000 down and took out a 30 year fixed rate loan for $202,000.

She was thrilled to become a homeowner and excited by the prospect of home price appreciation.

When a Refi is a No-No
Fast forward a couple of years later. Her condo had appreciated but so had her credit card debt. Enticed by all the refinance offers that came in the mail daily, she decided to investigate. Not fully understanding what she was getting into, Trudy refinanced her loan to one that offered a myriad of payment choices, better known as an “option-ARM.” The lowest payment option caused the loan to negatively amortize – which means the deferred interest is added to the outstanding loan balance – the exact opposite of a fixed amortizing loan where part of every single loan payment reduces the mortgage balance.

Like many other homeowners before and after her, Trudy chose this option in order to improve her cash flow and at the same time pay off her $30,000 in credit card debt. It’s understandable why this would seem like a good idea, but unless you truly understand what you’re getting into, the ramifications can be devastating.

By the time she applied for the loan modification in December of 2008, her deferred interest had grown to $22,000, her loan was now $260,000 and the interest rate was 7.11%.

All hell broke loose in September 2008.  Trudy received child support from her ex, which helped make ends meet. But he was a mortgage salesperson and with the fall-out from the credit crisis his income was slashed by $80,000 a year.  He was able to get the court to reduce his child support from $1200.00 a month to $180.00 a month. Ouch!

House Underwater
Trudy notified her mortgage company in October that she wasn’t able to make her payment. She had few options. Her loan balance was larger than her home value (also known as being “under-water”) so selling wasn’t an option.  She knew foreclosure was next and starting thinking about moving in with friends or family to regroup.

She found out about loan modifications and applied with her lender. She was turned down in January – the lender cited “information contained in her credit report.”

With a Little Help From Her Lender, Trudy Pulls Through
Then, as fortune would have it, President Obama’s mortgage relief program “Making Home Affordable” was launched in March. Trudy re-applied and this time she was successful. She received a letter of agreement on April 10 from her lender. Here are the new terms:  1. The lender agreed to reduce her loan balance by $53,442.4 to $208,402.44.  2. A new payment and interest schedule starts with a 2% interest rate and gradually increases (.75) per year to 6.5%. 3. Interest only payments are valid, but the borrower can choose to make a fully amortizing payment.

After hearing Trudy’s story, I did a little sleuthing to get some updates on the Obama administration’s $50 Billion mortgage relief program.  Turns out that Trudy was lucky. So far, the results have been disappointing, as lenders were not cooperating. But there are signs that this is changing.

Lenders have sent out offers to reduce monthly payments to around 19% of 3 million eligible borrowers’ –  – this is up from 15% at the end of July. Here’s the story>> (Sorry, the story has been removed by Yahoo.)

In the end, Trudy’s persistent and irrepressible self saved the day. She’s learned a lot of lessons from this…one of which is to always read the fine print and to better manage her use of credit cards.

You can find Trudy at the beauty salon at the Claremont Hotel in Berkeley, 510-843-3000 or at Altogether Different in Corte Madera, 510-334-5401.

If you found this information interesting, please share it with a friend!

“Making Home Affordable” Read More »

Curtis Financial Planning