Gifts of Present Interest
Under Internal Revenue Service (IRS) regulations, the annual gift exclusion applies only to gifts of what is called a "present interest." Thus, the person or institution who receives the gift must have the immediate right to use it and obtains full control. By contrast, a gift that someone may only use in the future, does not qualify for the annual exclusion. These are called gifts of "future interest."

Example: Joe gives $10,000 outright to his friend Bob, and places another $10,000 in an irrevocable trust to benefit his friend Larry. Larry, age 31, can use principal from the trust only when he turns 35. The gift to Bob is a gift of a present interest, because Bob gets the money now. The gift to the trust for Larry is a gift of a future interest, because he has no right to the money when Joe gives it. So, gift tax is assessed against the $10,000 Joe gives to the trust.

Also, a gift made to a minor may qualify for the annual exclusion (even though the minor doesn't have full present control of the gift) if three conditions are met:

  • The gift must be retained in trust or an UTMA account, for the minor's benefit.
  • The remainder of the gift must go outright to the child upon reaching the age of 21.
  • If the child dies before reaching the age of 21, the remainder must be paid to his or her estate.

Gifts No Non-citizen Spouses
For spouses who are both U.S. citizens, the gift tax isn't an issue because there is an unlimited marital deduction for gifts to a spouse who is a U.S. citizen. Gifts to a spouse who is not a U.S. citizen (also called an alien spouse), does not qualify for an unlimited marital deduction. Instead, an annually set permissible amount beyond $130,000 may be given in a year to the non-citizen spouse free of gift tax. Refer to the IRS for yearly amounts.



Tax Implications

Related Articles
  1. Insights

    Gift-Giving Etiquette

    Here's a look at how much you should spend and what you should give this holiday season.
  2. Personal Finance

    6 Tips For Getting The Most Out Of Gift Cards

    Gift cards are big business, amounting to an estimated $91 billion in annual retail spending. Get the most bang for your gift card buck.
  3. Insights

    Will Your Gift Card Gift Go Unused?

    An unbelievable amount of money gets wasted in the form of non-redemption: nearly $5 billion a year. These tips will ensure that your gift card gift doesn't go to waste.
  4. Taxes

    What The New Gift Tax Rules Will Mean

    The lifetime maximum for gift taxes is $5.12 million. However, it could drop to $1 million. Here's what that will mean.
  5. Managing Wealth

    The New Generation Of Charitable Gifts

    Stuck for a gift idea? These gifts give to more than your recipient.
  6. Investing

    How Safe Are Discounted Gift Card Websites?

    Could you buy a gift card online and find out it's worthless? Here's how to protect yourself (and whether you need to).
  7. Insights

    Gifts For People You Aren't That Close To

    Finding a gift for a new boyfriend or girlfriend, your boss, or the postman can sometimes be a challenge.
  8. Taxes

    Keep Gifts Simple and Meaningful This Season

    Sometimes simple gift ideas are the best.
  9. Taxes

    Valuable Year-End Tax Moves for 2016 (Part Three)

    Here's a look at tax strategies for itemized deductions, charitable gifts and other tax credits.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center