Can you exceed the $18K annual gift tax limit by funneling money through multiple people?

Thank you for explaining this so clearly! I had no idea about the "step transaction" concept. So basically, trying to be clever with routing the money around would just get us in trouble. Can you explain a bit more about this lifetime exemption? Would grandma need to file extra paperwork if she just gave me the full $70K directly? And does using some of this lifetime exemption have any downsides?

Yes, if your grandma gives you the full $70K directly, she would need to file IRS Form 709 (United States Gift Tax Return) by April 15 of the following year. This doesn't mean she'll owe any tax - it just reports the gift and shows how much of her lifetime exemption is being used. The main downside to using some of the lifetime exemption is that it reduces what can be passed on estate-tax-free at death. However, unless your grandma's assets are in the millions, this likely won't matter for most families. The current lifetime exemption is historically high at about $13.61 million per person, so using $52K of it (the $70K minus the $18K annual exclusion) would barely make a dent.

Did you find the analysis was worth it? I'm curious because my parents are planning to help me with some student loans and we're trying to figure out the tax implications. Does it actually give specific advice for your situation or just general information you could find elsewhere?

I'm skeptical about these kinds of services. Couldn't you get the same information from a free IRS publication or by calling them directly? What makes this different from just googling "gift tax rules"?

The analysis was definitely worth it for me. Unlike generic articles, it gave me personalized recommendations based on my aunt's specific financial situation and gifting goals. It highlighted options I hadn't considered, like how my uncle could also use his annual exclusion even though the money was coming from my aunt's inheritance. For free resources, the problem I ran into was conflicting information. IRS publications are comprehensive but hard to apply to specific situations, and good luck getting through to someone at the IRS who can answer complex questions. What made this different was getting clear, situation-specific guidance that considered all aspects of our situation, not just the gift tax part. It basically translated tax code into an actual plan we could follow.

Wait, how does this actually work? Does this service somehow have a special connection to the IRS? I've been trying to reach someone about a gift I received that might be over the limit and keep getting disconnected after waiting 45+ minutes.

This sounds like a scam. There's no way a third-party service can get you through to the IRS faster. They probably just put you on hold themselves and then connect you when they finally get through. Why would I pay for something like this when I can just be patient and wait on hold myself?

It doesn't have a special connection to the IRS - they use an automated system that waits on hold for you and then calls you when an IRS agent picks up. No more being stuck by your phone for hours on hold! They basically have technology that handles the waiting game for you. They don't put you on hold themselves - when the IRS system is ready for you, you get a call and are connected directly to the IRS representative. The time saving is real - I spent over 3 hours on multiple attempts getting nowhere, but got through in about 90 minutes with them handling the hold time. You're right that patience is an option, but for many of us, our time is worth more than sitting on hold for half a day.

That's super helpful! So if grandma AND grandpa are both alive, they could actually give me $36K, then give my wife $36K too, for a total of $72K in one year without triggering gift tax returns? And wow, I had no idea about the education and medical payments exception. So theoretically, if I had tuition or medical bills, grandma could pay those directly to the institution with no limit, AND still give me $18K (or $36K if gift-splitting with grandpa) in the same year?

Yes, exactly! Your grandparents could give $36K to you and $36K to your wife for a total of $72K in a single year without filing a gift tax return. This is because each grandparent can give $18K to each recipient. That's correct about education and medical payments. Your grandmother could pay unlimited amounts directly to qualified educational institutions or medical providers, and these payments wouldn't count against her annual exclusion or lifetime exemption at all. So she could pay $50K to your university for tuition, $25K to a hospital for a procedure, AND still give you the $18K (or $36K with gift-splitting) cash gift in the same year. It's a very powerful planning tool that many people don't know about.

The key factor here is whether there was a prearranged plan for your brother to give you the money. If your grandmother gave him the money with no strings attached, and he independently decided to gift it to you later, that should be fine. The IRS would be looking for evidence of a prearranged plan where your grandmother intended the money for you all along. Documentation matters here. If your brother deposited the money in his account and it stayed there for a reasonable period before he decided to gift it to you, that helps. If the money went from your grandmother to your brother to you within days, that could raise questions. Timing and intent are everything in these cases.

You're right, and a few others mentioned this too. I think we get so caught up in avoiding the gift tax that we forget the lifetime exemption is so high. Thanks for the reminder that going over the annual limit isn't the end of the world - it just means filing a form. Did your parents need an accountant to handle the gift tax return or is it something they could do themselves?

They did it themselves. The Form 709 isn't that complicated if you're just reporting a straightforward cash gift. They said it took about an hour to complete with some basic guidance from the IRS instructions. Just make sure to file it by the tax deadline in the year after the gift is made. If your grandma has a more complex estate or has made lots of other large gifts, then having an accountant might be worthwhile. But for a simple gift like $70K when she hasn't used much of her lifetime exemption, it's pretty straightforward.