[watermelon]

I’m confused about the concept of estates so if someone could help me out, I’d really appreciate it!

By definition an estate is “a legal entity that comes into existence upon the death of an individual,” so does that mean you cannot have an estate until you are dead? If you are alive and you pay $100,000 for someone’s college tuition directly to the school, how would you deduct that from your estate if you don’t have one until you are dead? Do you keep track of your gifts and then someone will deduct it from your estate once you die?

I’m basically just confused when an estate comes into existence because in the examples I’ve read, the gifter is alive at the time of the gifts, but that amount is still deducted from their estate. If I pay $100,000 for someone’s tuition out of my own pocket today, where and when can I deduct that amount?

Thanks!

[Anonymous]

You probably can't deduct the tuition you pay for someone from your return, unless you can claim that person as a deduction, which would mean, it wouldn't necessarily be a gift. Here are a couple of links that might help. The IRS has Tips and Cautions on most of their documents, which is great, because, you can usually find examples that really help explain the regulation.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes#4

https://www.irs.gov/pub/irs-pdf/p559.pdf

I have one client that makes quite a few gifts each year. I haven't seen one that wasn't a qualified charitible contribution or met the limit, but we keep a spreadsheet for them with a list of their gifts each year. The chances that they or their estate will pay a gift tax is almost nil, but we do it to keep them happy.

Good Luck!!

[Anonymous]

Tuition is never a gift if it is paid directly to the university. If you give someone 30k and they pay tuition then that would be a gift.

When you prepare estate tax returns, you count up all the gifts you made in prior years and calculate how much would taken away from the unified credit. Then you use the rest of the unified credit towards the estate's worth and whatever is left you are taxed on. Your will will determine where your wealth goes and there is usually an executor of the estate that takes care of paying stuff and managing the wealth

[Anonymous]

Somewhat off-topic from the OP's question, but Kricket and cprv's references to the lifetime gift listings sound like it's supposed to include all gifts, whereas I had been under the impression you only had to list gifts in excess of the gift exclusion ($14k or whatever it is now). I don't work in tax anymore and haven't studied it in awhile, so wondering if I'm getting rusty or if I misunderstood – if I gift someone $12,000 a year, would that need to be accounted for in my estate or would that never be a factor since it's under the annual gift exclusion?

[Anonymous]

it would never be accounted for. you wouldn't even file a gift tax return and it would not effect anything to do with the estate tax return

[Anonymous]

That's what I thought, but wanted to make sure. Thanks!

[watermelon]

If you give someone $10K and don't account for that since it is under the limit, doesn't it still technically get taken out of your estate since when you die you will have $10K less because you gave it away? And if you pay $200K for someone's tuition, doesn't that amount also technically get taken out of your estate since you will have less assets because you paid that amount to the college?

Thanks for all the replies! I don't know why this concept is so hard for me to grasp, but I just can't wrap my head around it!

[Anonymous]

yes that 10k and the 200k are no longer part of your gross estate when you transfer the money. they would never have to be “taken out” though since they would already be gone from when u paid that money

[Author]

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