How To Undo A Gift For Tax Purposes

Even the best laid plans don’t stand up to a whirlwind Congress, and as Deborah Jacobs of Forbes reports, many are finding themselves in a position of giver’s remorse rather than buyer’s remorse this January, and not over Christmas presents. Before Congress put through the new tax law, the gift tax was set to revert to 55% instead of the 35% of 2010, and on that basis it was solid strategy to make use of your lifetime limit while the tax was so low (indeed, I’ve mentioned articles with this advice in previous posts.) Of course, now that the gift tax rate didn’t revert back up or increase at all there seems to have been little advantage to that plan and some would like to undo their generosity before the April 15th tax deadline. Unfortunately, as Jacob’s article points out, that is easier said than done — without risking tax fraud.
The gift can be undone in a quick fix by a disclaimer on the part of the recipient, where the assets return to the donor, as long as the disclaimer complies with all of the attendant rules. First, if the gift was to a trust rather than an individual, there may be impediments imposed by state law. Then there’s the issue of timing, since the gift must be disclaimed within nine months (although this is probably not an issue if the tactic was adopted late in the year, as is likely.) Finally, in order for the gift to be disclaimed the recipient must still have it, as one would expect, but they also must not have accepted an interest in the asset or any of its benefits. The lines are hazy, and vary from state to state and also depend on the nature of the gifted asset, and so some consideration will be needed.
Unfortunately, given all of these restrictions it is going to be difficult to undo the gift. Indeed, it can’t simply be given back either, since that makes the original recipient liable for the gift tax as well (two gifts don’t undo a tax.) The one thing is for sure: if it can actually be undone, it must be undone correctly.
To learn more about charitable giving, and be sure to read out September e-newsletter.

To increase your monthly income, please contact us about a FREE VA benefits HANDBOOK, written by David Wingate, an accredited VA Attorney, of Senior Life Care Planning, LLC, go to info@seniorlcp.com or if you require additional information about VA Benefits, visit our Maryland Veterans Benefits website.

Please review our Blog on Elder Issues and Veteran's Benefits.

Additionally, if you are not receiving our Newsletter, please subscribe to our free NEWSLETTER to stay on top of senior and veteran’s issues.