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Gift Tax Question
Posted by: mjgkramer
Date: May 09, 2015 10:17AM
My almost 98 year old mother has a sizable amount in savings. A miserable woman all her life, she has always hated my two 40+ offspring and leaves them nothing in her will. Instead she is leaving half to me and half to the church, which she has not set foot in in 40 years or more. I do not need the inheritance and would like to split it between my two "kids". Can this be done without incurring gift tax?
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Re: Gift Tax Question
Posted by: OWC Larry
Date: May 09, 2015 10:27AM
All depends on how much the gift is - but if your grandmother gifts it to you and then you gift it to your kids - you're using part of your tax free gift limit. Ideally you can have her gift / leave it directly to the kids.

It's up to a pretty high value that taxes are exempt - but it is a lifetime limit kind of thing. This might help more:
[wills.about.com]



OWC Larry
Other World Computing
[www.macsales.com]
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Re: Gift Tax Question
Posted by: mjgkramer
Date: May 09, 2015 10:41AM
It's my mother and it would be my inheritance on her passing, not a gift. I have tried to convince her to at least leave them something and she would not consider it. She is now in a nursing home with dementia so the "sound mind" part of preparing a will precludes her modifying it.

At the moment her estate, of which I will receive half, is worth about $400,000 so the amount I would like to pass on to each of my two kids would be $100,000. They could use it now so would like to give it to them when she passes, not when I do. That assumes that I outlive her!
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Re: Gift Tax Question
Posted by: Bill in NC
Date: May 09, 2015 10:43AM
No big deal - just file a gift tax return to use up $200,000 of your $5+ million limit.
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Re: Gift Tax Question
Posted by: GGD
Date: May 09, 2015 11:03AM
Are you married, and are your children married? You can do it over a few years. At a minimum you can give $14,000 per year, and might be able to stretch that to $56,000 excluded from gift tax.

You can give your child $14,000
Your spouse can give your child $14,000 (of your money)
You can give your child's spouse $14,000
Your spouse can give your child's spouse $14,000

Repeat each year until done.

[www.irs.gov]

Quote

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.


How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014 and 2015 is $14,000.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013 (including 2014 and 2015).



Edited 1 time(s). Last edit at 05/09/2015 11:05AM by GGD.
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Re: Gift Tax Question
Posted by: MarkD
Date: May 09, 2015 11:19AM
Please check if there is a POD on the savings account after she has passed--easier to pick up the money. You might check the will to see if there is an alternative recipient. Might want to check if you are in a community property state--if the money is solely given to you, it is your separate property. You can give gifts to your Spouse, but need to document them in a community property state--like Texas. Or keep it separate and have your Spouse give other funds to the kids. The money transfers pretty quickly.


The easier step is just to fill out the gift form--it is all on you and the kids have no worry- and it counts against the cap, which is currently over $5 Million.

A combination of the two would reduce risk of ever paying a gift tax.

Finally, you gotta check the tax law again when she passes to make sure all still in place.
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Re: Gift Tax Question
Posted by: mjgkramer
Date: May 09, 2015 12:06PM
Thanks for all the advice.
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Re: Gift Tax Question
Posted by: OWC Larry
Date: May 09, 2015 12:27PM
in reading - that is separate from the lifetime generation skipping gifting which will allow you to give lump sum gifts without Federal taxes. Do need to look at your state though... different states do tax on the lump gifts even though the Fed gov doesn't (within the lifetime limit).

Quote
GGD
Are you married, and are your children married? You can do it over a few years. At a minimum you can give $14,000 per year, and might be able to stretch that to $56,000 excluded from gift tax.

You can give your child $14,000
Your spouse can give your child $14,000 (of your money)
You can give your child's spouse $14,000
Your spouse can give your child's spouse $14,000

Repeat each year until done.

[www.irs.gov]

Quote

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.


How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014 and 2015 is $14,000.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013 (including 2014 and 2015).



OWC Larry
Other World Computing
[www.macsales.com]
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Re: Gift Tax Question
Posted by: N-OS X-tasy!
Date: May 09, 2015 12:42PM
Consult a tax expert.



It is what it is.
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Re: Gift Tax Question
Posted by: Speedy
Date: May 09, 2015 01:15PM
Quote
N-OS X-tasy!
Consult a tax expert.

No worries, all of us here are experts on everything. GGD has the correct answer. You can also set up a trust but it appears that you will easily avoid any tax by stretching your giving over two years.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: Gift Tax Question
Posted by: Janit
Date: May 09, 2015 03:31PM
You can start by giving the tax-free multiple of $14000 to each the first year as described above. If that comes to $56.000 each year, you can do it easily over 3 years and not worry about filing gift tax forms.

If the amount you can give each year is lower, then you could give them interest free loans for the remainder at the same time, and "forgive" the appropriate multiple of $14000 each year until the loan is "paid off." Such an arrangement is perfectly kosher as long as you write up a formal agreement on paper and formally record the "repayments." Doing it this way requires that you really are willing to babysit the paperwork. It might be worth consulting a lawyer to get the agreement right if you have any doubts.



Edited 1 time(s). Last edit at 05/09/2015 03:32PM by Janit.
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Re: Gift Tax Question
Posted by: Wailer
Date: May 09, 2015 04:03PM
I'm not sure what state you are in, but it is possible her estate will need to go through probate. That could be a real PITA as well as costly. If she owns her house and it is not in a revocable trust, it will almost surely need to be probated). It's really a shame that your mom can't leave it all for you and have you donate half to charity. You'd be able to write off ~$200k and give the other $200k to your kids. Oh well.

Check to see if beneficiaries are named in her bank, brokerage or IRA accounts, etc. Those funds will avoid probate and go straight to the beneficiaries (payable-on-death accounts are like a poor-man's trust). From what you describe, she probably hasn't named any of your kids as beneficiaries and she's not able/willing to change them now. If you have a properly executed Power of Attorney, you may be able to change her beneficiaries. Keep in mind that an attorney in fact has a fiduciary duty to the beneficiaries. Not a problem if you are the beneficiary, but the church might have something to say if you suddenly added you or your kids to an undesignated account or worse, changed the beneficiary from them to you.

As mentioned, the simplest, easiest way to handle this would be for you to accept the largesse and then dole it to your kids $14k/yr from you and another $14k/yr from your spouse. I'd avoid giving more than that because you never know if you will amass an amount that exceed the estate tax or if the laws may change lowering the exclusion amount.

Lastly, if my parents had reasons for not wanting to leave anything for my kids, I'd respect them and not mess with their will or beneficiaries. However, once I inherited the money, I would have no qualms about deciding how to distribute it. Only you know if this money will do more harm than good for your kids. Frankly, I don't want my parents leaving any inheritance for my kids (even if I don't need it) nor will I leave any for my kids/grandkids until I'm confident they are capable of handing it (this is why I set up a revocable trust).

If your kids are in low income brackets and you have long-term appreciated stock, I would consider gifting them that stock for them to sell (possibly tax free) instead of $14k cash.
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Re: Gift Tax Question
Posted by: Wailer
Date: May 09, 2015 04:08PM
One last thing...

If there are funds in an IRA, remember that income taxes will be due. At age 98, I'm guessing she's pretty much exhausted those from the RMD but if all that $400k is in an IRA, she could face a pretty hefty income tax. However, there are ways around this that I won't bore you with.
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Re: Gift Tax Question
Posted by: mjgkramer
Date: May 09, 2015 08:34PM
I am married as are our two children. Mom is widowed and I have general and medical POA. Her money is not in an IRA so no taxes due. We are all in Texas (yeehaw). I have her will, which will have to be probated and I am the executor. All her assets are in savings and checking accounts in the bank on which I am a signer and in investment accounts for which I am able to make decisions.

Wailer - There are only two major beneficiaries for the cash - me and the church. I have no siblings to split with although she has designated a small amount for one of my cousins. I have two very good caring offspring whom my mother hates for no real reason. I have the nicest, most caring wife and my mother has hated her for the 52 years we have been married. The problem is that my mom has been a self-centered, petty witch as long as I have known her.
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Re: Gift Tax Question
Posted by: GGD
Date: May 09, 2015 08:46PM
Quote
mjgkramer
The problem is that my mom has been a self-centered, petty witch as long as I have known her.

Just a reminder, tomorrow is Mother's Day smiling smiley
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Re: Gift Tax Question
Posted by: Janit
Date: May 09, 2015 08:56PM
It may be worth asking a lawyer whether you have the power to create a revokable living trust on her behalf into which you can transfer her assets so as to avoid probate. This would of course include provision that the contents of the trust would be distributed according to the terms of her will. It may be too late to do this, though.
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Re: Gift Tax Question
Posted by: Filliam H. Muffman
Date: May 09, 2015 10:07PM
What Wailer and Janit said. A trust should be the best way to do it. The only issue might be is who will be the executor. It's a major pain to get a flake executor to step aside, my brother dropped the ball in a major way on completing my parents trust (coming up on 3 years).



In tha 360. MRF User Map
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Re: Gift Tax Question
Posted by: Speedy
Date: May 10, 2015 04:00AM
All her assets are in savings and checking accounts in the bank on which I am a signer and in investment accounts for which I am able to make decisions.

Hmmm. I would think these funds would go to you upon her death.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: Gift Tax Question
Posted by: billb
Date: May 10, 2015 06:57AM
Quote
Speedy
All her assets are in savings and checking accounts in the bank on which I am a signer and in investment accounts for which I am able to make decisions.

Hmmm. I would think these funds would go to you upon her death.

That's why it is important you have a will and your IRA has a beneficiary of record.



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The doorstep to the temple of wisdom is the knowledge of one's own ignorance. -Benjamin Franklin
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Edited 1 time(s). Last edit at 05/10/2015 06:58AM by billb.
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Re: Gift Tax Question
Posted by: Wailer
Date: May 10, 2015 09:11AM
Quote
mjgkramer
All her assets are in savings and checking accounts in the bank on which I am a signer and in investment accounts for which I am able to make decisions.

Are these accounts Joint tenant with the right of Survivorship? If so then they are yours, unencumbered without probate, when she passes. If they are Tenant in Common then her half will pass to her estate if no beneficiary is designated (to be probated) and you get the other half. As Executor of her estate, you are responsible for what is in her estate. This will not include what you received as joint tenant.

If all her assets are titled as JTWROS, then you have no legal obligation to give any money to her church or your cousins. Of course, you are free to do so but it would be out of your own pocket and subject to gifting limitations. This would actually be ideal because if you decide to honor her wishes and donate to her 501c3 tax-exempt church, you can likely claim a deduction on your income taxes.

Personally, I would avoid setting up a revocable trust. They are expensive relative to the $400k and someone will need to serve as the trustee, which is also expensive because it's full of liability. People need a trust to avoid probate and to control their assets after they've passed, ie keep it out of the hands of drug-addicted children or gold-digging 2nd marriages. It doesn't seem like your mom needs a trust.
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