"Experts Aren't" -- Once again, I find this to be true. Here's the real scoop on giving tax-free gifts and filing IRS Form 709.

I'm not a lawyer, accountant, or tax professional. Information you find here is not advice; it's simply a narrative. I'm a private citizen interested in conserving my assets for purposes I choose. I'm not a fan of taxes. What began as a simple desire to set up a college fund for my kids became a year long eductional process of reconciling what investment companies, the IRS, and the Internal Revenue Code each say. And indeed, each was different. Here's what I found.

The IRS Form 709 is not a schedule or addendum to your normal tax filing. It is a totally separate filing, that only coincidently has the same due date. It has its own Schedule A, Schedule B, and Schedule C. It's used to report gifts you make to other people. Married couples are not allowed to file joint Form 709s; they must be filed by individuals. This is true even if corporations or other legal entities make gifts -- it must come down to some individual making the gift.

The default position of the IRS is to tax a gift at an 18% to 55% rate. There are various deductions and credits that reduce this tax rate. An exclusion that almost everybody uses is the $10,000 annual tax-free gift. Without it, you'd be legally taxed on the $10 of gas money you gave your kid!

Sitting in the background is a $600,000 (or more, post 1998) life-time exemption most people never use until they die, and their estate makes gifts to children or spouses. But if you make other taxable gifts through the years, each Form 709 you file whittles away at this $600,000 starting value.

You don't need to file a Form 709 for any given year (simultaneously, any gifts are non-taxable) if you meet all of the following:

• You made no gifts during the year to your spouse;
• You gave no more than $10,000 during the year to any one donee;
• All the gifts you made were of present interest.

The second one is often quoted as part of the Uniform Gifts to Minors Act. In fact, it applies to anybody. If I gave $9000 to you this year, I don't have to report it. See the Investment FAQ for more information in this area.

Number 3 is the one that has given me grief. I wanted to set up a trust for my kids, and approached 20th Century (now American Century) about their GiftTrust mutual fund.

On the bottom of the mutual fund application, the creator is asked to sign the following:
[..not yet finished..]

Be cautious giving gifts to your own children. Tax Court has ruled that if the donor and the custodian for a minor are the same person,