Gifts that become subject to federal gift tax can be categorized as direct or indirect gifts. Income earned in the future and assigned to the donee may also be considered a direct gift for gift tax purposes. If a life underwriter assigns a portion of his renewals to his daughter, he has made a gift of the present value of the renewals for gift tax purposes. Forgiveness of a debt is a direct gift if it occurs in a nonbusiness situation. If a father lends money to his son evidenced by a note and the father later cancels the note, he has made a gift to his son.
Indirect gifts can also trigger gift tax liability.
One example of this type of gift is the payment of a relative s debts. If a father pays his adult son s debts, he has made a gift to his son. Conversely, parental gifts to a minor child not in excess of the support obligations of a parent are not gifts. Another example of indirect gifts is a gift made to a third party. If a father gives funds to his son with the stipulation that the son take care of his sister, the father has made a gift to his daughter, rather than to his son.