General Question

simone54's avatar

Does the IRS really allow you to give 60 thousand dollar tax-free gift to your wife?

Asked by simone54 (7453 points ) January 1st, 2013

In the Shawshank Redemption, Andy tells the head guard that he can keep his inheritance if he gives it to his wife. He says the government allows a one time gift to your spouse without paying taxes on it.

Was this ever a real life thing like this? Does it still exist?

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9 Answers

JLeslie's avatar

I thought a spouse does not get taxed at all on any money. I’ll be following this Q. Isn’t that one of the reasons gay people say it is unfair they can’t marry? Because of rules like this?

CWOTUS's avatar

It was probably true at the time of the setting of the movie, which was, I think, in the late 50s. You have to remember that at the time, women did not typically work outside of the home.

I imagine that the setup might have been that for the year in question, the prison guard and his wife would file “married filing separately”, and the husband’s income would have been lessened by the amount of the bequest he received, reported as a gift to his wife. The wife would claim the exclusion from tax on her return, and therefore the money would have been received tax-free.

At least I ran an immediate “this makes sense” when I saw the movie; I didn’t attempt to fact-check it (and I’m not going to now).

JLeslie's avatar

I don’t remember why the inheritance was in jeopardy? Can someone remind me?

YARNLADY's avatar

In community property states one half of all the marital assets belong to each partner.

JLeslie's avatar

@YARNLADY I think that applies to divorce not death.

Lightlyseared's avatar

In 2012 the amount you could gift tax free was $13,000 per recipient. You could also gift to charities and political parties as well as pay someone medical or school fees tax free up to the limit.

JLeslie's avatar

@Lightlyseared That is gift, and the tax is paid by the giver not the receiver, and as far as I know you don’t gift to a spouse. With inheritance I think the estate pays. The only tricky thing currently is what someone inherits can be considered separate from other monies in a marriage, so in the case of divorce the spouse does not have a right to it. But from what I understand if the money is comingled in accounts that have both spouses names on it, the courts can rule the spouse as an equal owner.

Inheritance money today is only taxed above $5 million up from the previous $1 million, but I don’t know what the law was in the time frame of the movie. Meaning, if a relative of yours died (God forbid) and he willed you his entire estate worth total $700k, there is no tax to pay.

bkcunningham's avatar

It was the method Stephen King used when writing the story that allows the audience the opportunity to know that Andy, although a former banker, knows about finances and tax code. This was an important part of setting the stage for Andy to work for the warden.

@CWOTUS, the story is set from 1947 to 1965 in Maine. The movie posters on Andy’s cell wall tell the timeframe in pictures.

DrBill's avatar

There are ways to transfer large sums to other parties but it is all dependent on your specific situation. Also remember that Andy was talking about federal taxes, your state may tax the money even if the fed does not.

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