The law allows for a certain amount of money to be gifted to individuals with no tax consequences on an annual basis. For the 2020 tax year, the gift tax exclusion amount is $15,000. Many aging parents take advantage of this exclusion to reduce their probate estate and avoid tax penalties by gifting up to this amount to their adult children annually. However, if the adult child they are gifting this money to has his or her own financial struggles and is being pursued for creditors, that money could be fair game.
The problem is that this money is not protected if the receiving party is being pursued by a creditor for an outstanding debt. If the debt is valid and still legally collectible, money that is gifted to the consumer is reachable for purposes of satisfying what is owed.
In any debt collection case, the creditor will conduct discovery to obtain certain information regarding the person’s assets, including bank accounts or any other liquid assets that could easily be seized. If the individual deposits an amount of money gifted from a parent or someone else, that money, once it is received, can be reached by the creditor, especially if it is the only asset the individual has that could feasibly pay off the debt.
One important issue to keep in mind is that the debt must be legally collectible. The statute of limitations is determined by the state where the person who owes the debt resides. To determine when the timeline begins, the consumer should look to the date of his or her last payment made on the account, not when the debt was first incurred. Once a payment is missed, then a collections cause of action begins, thus beginning the clock for the statute of limitations.
In Florida, this length of time depends on the type of debt. If the collection is for a debt incurred through a written contract, such as a personal loan, five years must have passed, meaning the debt is five years past due. However, if the debt involved stems from an oral contract or a revolving account, which includes credit card debt, the timeline is four years, meaning the debt must be four years past due.
If the debt owed by the consumer who has received the gift is past the statute of limitations, the debt is no longer legally collectible. Therefore, the amount gifted is protected and safe from creditors. So long as the person who owes the debt does not do anything to restart the clock for the statute of limitations, that money is safe.
Aside from debt collection, a large sum of money being gifted to an individual who qualifies for governmental benefits could have a negative effect, as well. Before the money is gifted, the individual who receives these benefits should investigate whether receiving a large amount of money at once above a certain amount will cause him or her to no longer qualify for these benefits.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
Additional Source: IRS.gov.