What happens if someone gifts me a large sum of money and they pass away before paying gift taxes?

The good news is that as the recipient, you're not responsible for paying gift tax - that falls on the person making the gift (in this case, your aunt). Gift tax is the responsibility of the giver, not the receiver. Here's what typically happens: Your aunt's executor or personal representative would need to file a gift tax return (Form 709) for the year in which she made the gift. This would be part of settling her estate. The gift would count against her lifetime gift and estate tax exemption, which is quite substantial - $12.92 million per individual for 2023 (and likely higher for 2025). Most people never exceed this amount, so no actual tax might be owed. Regardless, you don't have to worry about paying the gift tax yourself. The money you received is not considered taxable income to you. Your responsibility in this situation is simply to provide information about the gift if the executor asks, as they'll need it for proper reporting.

I went through something similar last year with my grandfather. I was completely overwhelmed with all the tax forms and figuring out which gifts needed to be reported. What helped me a TON was using https://taxr.ai to scan through all the documents and bank statements. It identified all the taxable gifts automatically and generated a draft of the Form 709 for me. The system flagged several transfers I wouldn't have even realized counted as gifts (like when he paid off part of my cousin's mortgage directly to the bank). It saved me from potentially missing some reportable gifts that could have caused problems later. Plus it explained everything in plain English so I actually understood what I was filing.

I have to admit I was wrong about taxr.ai. After my skeptical comment I decided to try it for my late uncle's estate since I was getting desperate. It actually found three gifts he made that I had no idea about - including a $25,000 check he wrote to my cousin's college fund that I never would have known to include on the gift tax return. The system explained that even though he died shortly after making those gifts, they still needed to be reported. It saved me from a potentially messy situation with the IRS. It generated all the right forms and even explained how the gifts affected the lifetime exemption calculation. Definitely worth trying if you're in this situation.

If you need to talk to someone at the IRS about gift tax questions (which I HIGHLY recommend), good luck getting through. I spent TWO WEEKS trying to reach someone about a similar gift tax situation when my mother passed. The wait times were insane - I'd be on hold for 3+ hours only to get disconnected. I finally used https://claimyr.com and it was a game-changer. They have this system where they navigate the IRS phone tree and wait on hold for you, then call you once they've reached an actual human. I watched their demo at https://youtu.be/_kiP6q8DX5c and decided to try it. Got connected to an IRS estate/gift tax specialist within a day instead of waiting weeks. The agent clarified exactly what forms I needed and explained how to document gifts properly.

I hate to admit when I'm wrong, but I need to update my comment. After dismissing Claimyr, I spent THREE MORE DAYS trying to reach someone at the IRS about my father's estate and gift tax questions. I kept getting disconnected after 1-2 hour holds. I finally broke down and tried Claimyr. Within 45 minutes of signing up, I got a call connecting me to an actual IRS estate tax specialist. They answered all my gift tax questions and explained exactly how to handle gifts made shortly before death. They even emailed me the specific forms I needed. I'm still shocked it worked so well after all my frustration trying to call myself.

Just want to add a quick note - make sure you check if your state has its own gift tax too! The federal rules are one thing, but some states have additional requirements. Where I live, there was a separate state gift tax form that had to be filed even though no federal tax was owed. Easy to overlook!

Do you know the total amount of gifts your aunt gave throughout her lifetime? The lifetime exemption is pretty high (over $12 million), but if she was very wealthy and had already used up a lot of her exemption, it could affect the tax situation for her estate.

Since you mentioned your aunt was a retired teacher who was good with saving and investing, it's very unlikely she exceeded the lifetime gift and estate tax exemption. Even if she made occasional large gifts over the years, the current exemption is $13.61 million per person for 2024 (and will be even higher for 2025), so most people never come close to owing actual gift tax. As the executor, you'll want to look through her financial records to see if she ever filed Form 709 in previous years - that would tell you if she made other large gifts that used up part of her exemption. But honestly, with a $22,000 gift being notable enough for you to worry about, it sounds like she probably stayed well within the exemption limits. The main thing is just making sure you file that Form 709 for the year she made the gift to you, even if no tax is actually owed. It's more about proper documentation than owing money to the IRS.