Guide to Understanding the Gift Tax

Helping your mom with her finances can raise complicated tax issues.

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Dear Alpha Consumer,

My mother’s house recently burned down. I usually help her with her finances, so I planned to put the insurance payment into my own account. That way, I can continue to handle all of her bills for her. But if I do this, will that constitute a gift, and will I need to pay gift taxes on it? Is there any way around paying gift taxes that still allows me to handle my mother’s finances for her?

What a complicated—and stressful—situation. First of all, I’m glad to hear your mother got out of her burning house safely.

To help answer your tax questions, I turned to Jeffrey Weintraub, senior partner at the public accounting firm Goodman & Company in Rockville, Md. His first question was about how you help your mother with her finances. If you pay bills for her out of her own checking account (as opposed to with your own money), then you might want to consider creating an account that’s in your mother’s name but that gives you signature authority. That means you are essentially managing her money without actually owning it.

The benefit of that system is that if you happen to get sued for some reason, your mother’s assets wouldn’t be at risk. Plus, it avoids the gift tax ramifications. Weintraub’s second question was about the amount of the insurance payment. If it falls below the $1 million lifetime exclusion limit for gift taxes, then you don’t have to worry about any tax issues. (But he points out that if gift taxes were an issue, it would be the responsibility of the person giving the money—your mother—and not you, the recipient.)

Weintraub recommends keeping the money in your mother’s account but making sure that you have authority over the account, so you can continue to manage her money for her while at the same time avoiding potential gift taxes and putting the money at risk in case of a lawsuit.

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