Receiving Cash Gift...Tax/legal implications??

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KStef
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Receiving Cash Gift...Tax/legal implications??

Post by KStef »

So I'm expecting to receive a cash gift of over 100K from a sibling. I wanted to find out from the group if there are any tax or legal implications for me. I assume he (donor) has to file a gift tax document with 2022 tax filing and that I (recipient) don't have to do anything except deposit the check. Am I correct? Am I missing anything? Thanks
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ResearchMed
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Re: Receiving Cash Gift...Tax/legal implications??

Post by ResearchMed »

KStef wrote: Mon Jan 24, 2022 4:10 pm So I'm expecting to receive a cash gift of over 100K from a sibling. I wanted to find out from the group if there are any tax or legal implications for me. I assume he (donor) has to file a gift tax document with 2022 tax filing and that I (recipient) don't have to do anything except deposit the check. Am I correct? Am I missing anything? Thanks
Correct. No tax for the recipient; no need to do anything.

But you could maybe say thank you? :wink:

RM
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Topic Author
KStef
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Re: Receiving Cash Gift...Tax/legal implications??

Post by KStef »

I sure will :D
Silk McCue
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Re: Receiving Cash Gift...Tax/legal implications??

Post by Silk McCue »

Enjoy the gift. You have no reporting obligation and no tax implications. Your sibling needs to report the gift as you have noted.

Cheers
Topic Author
KStef
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Re: Receiving Cash Gift...Tax/legal implications??

Post by KStef »

Thanks for the replies. Happy to hear that :)
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KStef
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Re: Receiving Cash Gift...Tax/legal implications??

Post by KStef »

Does he (donor) have to issue a gift letter to me or something to that effect, or is he only required to file the tax form with taxes?
Makefile
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Re: Receiving Cash Gift...Tax/legal implications??

Post by Makefile »

It wouldn't be the worst thing to have some evidence to substantiate that it's a gift even if it's just "Gift" on the memo line of the check. Were you to undergo a full-bore IRS audit you would need that. And if inflows-and-outflows reporting of bank accounts were in place, such a deposit would likely generate a CP2000 letter you would have to straighten out, but under current law there is no such reporting of merely a large check deposit.
sureshoe
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Re: Receiving Cash Gift...Tax/legal implications??

Post by sureshoe »

Makefile wrote: Mon Jan 24, 2022 4:18 pm It wouldn't be the worst thing to have some evidence to substantiate that it's a gift even if it's just "Gift" on the memo line of the check. Were you to undergo a full-bore IRS audit you would need that. And if inflows-and-outflows reporting of bank accounts were in place, such a deposit would likely generate a CP2000 letter you would have to straighten out, but under current law there is no such reporting of merely a large check deposit.
I was going to say something like this.

I am assuming you have a great relationship, otherwise you wouldn't be getting the cash, but if there was a weird falling out, you don't want to have any question that this is a loan vs. gift if your sibling did not file paperwork/etc.

Also if you're married, it might be worth making a note that this is a gift, separate from joint assets. Again, if you're not married or fine with your spouse getting half upon a divorce, less to be concerned with.

Happy days.
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ResearchMed
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Re: Receiving Cash Gift...Tax/legal implications??

Post by ResearchMed »

sureshoe wrote: Mon Jan 24, 2022 4:25 pm
Makefile wrote: Mon Jan 24, 2022 4:18 pm It wouldn't be the worst thing to have some evidence to substantiate that it's a gift even if it's just "Gift" on the memo line of the check. Were you to undergo a full-bore IRS audit you would need that. And if inflows-and-outflows reporting of bank accounts were in place, such a deposit would likely generate a CP2000 letter you would have to straighten out, but under current law there is no such reporting of merely a large check deposit.
I was going to say something like this.

I am assuming you have a great relationship, otherwise you wouldn't be getting the cash, but if there was a weird falling out, you don't want to have any question that this is a loan vs. gift if your sibling did not file paperwork/etc.

Also if you're married, it might be worth making a note that this is a gift, separate from joint assets. Again, if you're not married or fine with your spouse getting half upon a divorce, less to be concerned with.

Happy days.
If one is married, I'm not sure that a note about receiving a specific sum as a gift would "protect" the money in case of a divorce.
Would even keeping the money in a separate account necessarily "work"?
That may depend upon the state.
Maybe some sort of trust could be used?

RM
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AnnetteLouisan
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Re: Receiving Cash Gift...Tax/legal implications??

Post by AnnetteLouisan »

Get the gift first. THEN ask for some paperwork. 😉
fyre4ce
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Re: Receiving Cash Gift...Tax/legal implications??

Post by fyre4ce »

ResearchMed wrote: Mon Jan 24, 2022 4:31 pm If one is married, I'm not sure that a note about receiving a specific sum as a gift would "protect" the money in case of a divorce.
Would even keeping the money in a separate account necessarily "work"?
That may depend upon the state.
Maybe some sort of trust could be used?

RM
My understanding is that gifts and inheritance to one spouse during a marriage are usually not included in marital property (which is divided by the courts according to state law) and remain sole property of the recipient. I believe how this would work practically is that if the money is commingled with marital property (eg. invested in a joint brokerage, used to pay for the marital home), in a later divorce, if OP produced proof of the gift, then the $100,000 would be carved out of joint assets and given to OP, and the division would apply to remaining assets.

If the assets are commingled, the growth usually becomes marital property, however, and that amount can be substantial. If the money is invested and grows at 8% for 20 years, it will be worth a out $500,000. If the OP then divorces, the $400,000 of growth is usually treated as marital property and divided, even if the OP gets all the principal. This can be a motivation to keep the gift in a separate, individually-titled account, as this can sometimes mean growth is individual property too.

I'm not an attorney or (fortunately) an expert on divorce. If any experts know any of this to be incorrect, please let me know and I'll edit my post. And these laws are state-specific, so even if there is a "typical" rule, OP's state may be an exception. If it's at all a concern, OP should consult an attorney in his state. None of the above matters if OP isn't married.

A trust would provide a higher level of protection, both from divorce and also from creditors. I believe the giver would need to set up the trust with the OP as the beneficiary. A trust may cost a couple thousand dollars, and maybe some ongoing management fees, so a $100,000 gift is borderline as to whether this is necessary/cost-effective. OP also needs to assess his asset protection need, and may be able to get similar level of asset protection by just taking normal steps (eg. using it to pay down the mortgage, if home equity is protected from creditors in his state).
fyre4ce
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Re: Receiving Cash Gift...Tax/legal implications??

Post by fyre4ce »

AnnetteLouisan wrote: Mon Jan 24, 2022 5:00 pm Get the gift first. THEN ask for some paperwork. 😉
+1 (except if OP wants the money to be put into a trust)
Gnirk
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Re: Receiving Cash Gift...Tax/legal implications??

Post by Gnirk »

The only time I think you will need a letter stating that the $$ is a gift is if you are using it as a down payment on house or property where you will finance the balance. The lender will usually require you to show the origin of downpayment $$ that is relatively recent.
JackoC
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Re: Receiving Cash Gift...Tax/legal implications??

Post by JackoC »

Makefile wrote: Mon Jan 24, 2022 4:18 pm 1. It wouldn't be the worst thing to have some evidence to substantiate that it's a gift even if it's just "Gift" on the memo line of the check.
2. Were you to undergo a full-bore IRS audit you would need that.
3. And if inflows-and-outflows reporting of bank accounts were in place, such a deposit would likely generate a CP2000 letter you would have to straighten out, but under current law there is no such reporting of merely a large check deposit.
1. I agree, why not?
2. And this is a plausible rationale to suggest the giver do it, 'I just want to make sure I'm OK with the IRS'. But can you point to a particular example where the IRS demanded this or else presumed the money was unreported income? Just wondering if there's anything more concrete behind it than the idea it's four simple letters on the memo line which the giver should have no problem writing.
3. As you say at the end, 'assume current law'=non-issue.

I think the interpersonal possibilities others mentioned are probably more important, though might also be remote risks in a given situation, which the individual knows best how remote: that the giver later claims it was a loan as in 'give it back' (basically preempted also by 'gift' on the memo line), or part gets taken in a divorce (that's more complicated).
Topic Author
KStef
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Re: Receiving Cash Gift...Tax/legal implications??

Post by KStef »

Thanks for all the great advice. I'm not married. I'll have him indicate "Gift" on the memo line.
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