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LSDefine
Simple English definitions for legal terms
taxable gift
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A quick definition of taxable gift:
A taxable gift is when someone gives something to another person and the government requires them to pay taxes on the value of the gift. Taxable income is when someone earns money and the government requires them to pay taxes on that money. A taxable termination is when someone's interest in a special kind of trust ends and the government requires taxes to be paid if the trust is set up in a certain way. Before 1976, people could set up trusts that paid money to their children and grandchildren without paying taxes, but now there are rules to prevent that.
A more thorough explanation:
A taxable gift is a gift that is subject to taxation by the government. This means that if you give someone a gift that exceeds a certain amount, you may have to pay taxes on it.
For example, if you give your friend $20,000 as a gift, that amount may be subject to gift tax. The government sets a limit on how much you can give someone each year without incurring gift tax. In 2021, that limit is $15,000 per person. So, if you give someone more than $15,000 in a year, you may have to pay gift tax on the excess amount.
A taxable termination is a type of event that can trigger the generation-skipping transfer tax. This tax is imposed on certain transfers of property that skip a generation, such as gifts or bequests to grandchildren.
For example, let's say that your grandfather created a trust for your benefit. The trust pays you income for life, and then passes to your children when you die. When your father (who is not a skip person) dies, his interest in the trust terminates, and the trust property passes to you. This is a taxable termination, because the property is passing to a skip person (your children) without any intervening interests held by nonskip persons.