Discussion:Gifts vs. Inheritances
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Discussion Forum Index --> Tax Questions --> Gifts vs. Inheritances
| 21 November 2007 | |
| My siblings and I just lost our mother. My sister Pat was designated as executrix. She has been managing my mother's holdings for several years and assumed that my mother's will was written such that the estate would be divided among each child (6 of us); it was not -- it was made out to Pat as the recipient. The total of the estate is $300,000.
Ok, we know that gifts and inheritances are not taxed; however, Pat's concern is that she will have to file a gift tax return since what she will be paying us (siblings) is over the $12,000 exclusion (in each case). Is she excluded entirely from this since she is one of the recipients (as well as executrix)? | |
Donniecastleman (talk|edits) said: | 22 November 2007 |
| I'm pretty sure there's a way to divide this up without worrying about gift tax, as it's more of a substance over form issue, that she probably meant for it to go to each of you individually but put Pat's name on it from just a paperwork standpoint. In my opinion, just off the top of my head, the payout equally to the 6 kids will not generate a gift tax situation at all. Riley or Tin will be along shortly with references to commend or dispute my thinking on this. | |
| 22 November 2007 | |
| Hdoverby, I recommend your sister retain an estate planning attorney to help administer your mother's estate. If done properly, she might be able to "disclaim"/"renounce" a portion of the estate passing to her, and avoid gift tax consequences when the property passes to the other siblings. I definitely do not recommend your sister try to do this alone. She should get a move on soon b/c there is a time limitation for making "qualified disclaimers" for gift tax purposes. Good luck. | |
| 22 November 2007 | |
| Probably could have been handled to avoid the gifting. As phrased, once Pat has receipt of the funds it cannot. | |
| 22 November 2007 | |
| One angle that I thought of (if no other) is the Gift Tax Credit (Chap 12A section 2505). It would allow up to $1,000,000 lifetime gifting. Another angle is, can she receive her portion as benficiary and make the distribution to us other siblings as executrix? | |
| 22 November 2007 | |
| I must have click the save reply button right before Dennis. But Dennis is right, there's a chance it's too late to avoid gift tax consequences. In any case, Pat needs to see a professional as soon as possible. | |
| 22 November 2007 | |
| If anyone has a reasoning as to why/why not use of the Gift Tax Credit in this case please let me know. Also, can she receive her portion as benficiary and distribute as executrix and avoid the gift tax? | |
| 22 November 2007 | |
| Using the unified credit is neither an option or an angle, merely a consequence that comes with the filing of Form 709 to report. Seek professional help. | |
| 22 November 2007 | |
| You don't want to use executrix's lifetime gifting exclusion except as a very last resort -- it's a waste to screw up executrix's separate tax attributes when you still have plenty of options. Talk to an experienced estate admin lawyer to discuss qualified disclaimer options. You should be able to do this if you're still within 9 months of the date of death. IRS Code provides for qualified disclaimers, but you still have 2 state law issues to address: 1. the form of the disclaimer; and 2. the effect of the disclaimer. Per the IRS Code, the disclaimer itself cannot provide for the subsequent disposition of the disclaimed assets -- you have look to state law (e.g., to a contingent beneficiary, or pursuant to the probate act). Finally, depending on other facts and circumstances, it may be advisable to enter into a family settlement agreement to document everything (LOTS of otherwise normal families get weird when there's money involved). See a lawyer asap to work out the details. | |
| 23 November 2007 | |
| Hdoverby - Sincere condolences on the loss of your mother.
The reason Pat wouldn't want to use up any of her $1,000,000 lifetime gift exclusion is that she would at the same time be reducing her lifetime combined gift/estate tax exclusion. Therefore, if Pat's estate turned out to be more than the combined exclusion in effect a the time of her death, there might be an unnecessary tax, at a rate that could be something like 45%. One option might be for Pat to gift each of her siblings $12,000 per year for 4 years. By 1/1/08, this would be half done. No gift tax returns would be needed. If she's married, she can double the amount of the annual tax free gift, but gift tax returns would be required. Remember that your mother did, in fact, sign a will leaving the $300,000 to Pat, and may have had her own reasons for doing so. Any other division of assets is strictly up to Pat. Therefore, I think you need to be sure that she is not harmed in any way. The legal and tax preparation fees should be split among the siblings. | |
