My father-in-law is selling property and wants to give me, my husband and daughter around $90,000 to $120,000 towards paying off bills and buying a new home. I know that there will be tax required for him and us, but what is the best way to go when handling this?
If your father-in-law is married, he can give the three of you a total of $72,000 without incurring any gift tax. One approach would be for him to give you that much this year, and the balance on or after January 1.
In any case, a gift tax will be incurred, but it's likely that no gift tax will actually be owed yet. There is a lifetime exemption of $1,000,000, and no tax is actually required to be paid until taxable gifts exceed that amount.
Taxable gifts do get added back to a person's estate for estate tax purposes after he dies, less gift tax paid.
Stu
snipped-for-privacy@aol.com posted:
On the contrary: a _gift_ is never taxable to the recipient! You, your husband and your daughter will never have to declare any income for a bona fide gift!
Now, your father-in-law has a different issue. He is free to give you, your husband and your daughter _each_ $12,000 this year, and will face no tax consequences whatsoever; _but_, when he tops the $12,000 limit, there are issues that involve reports to the IRS, and consequences for his estate.
These problems can be mitigated by spreading the gifts out over two years (which would create a combined 2-year total of $72,000 that would not require any reports) ... and there are also ways to "loan" the three of you the difference between the original $36,000 that is not reportable -- and the $90,000, which he _wants_ to give you, in total.
However, my advice would be that he consult with a professional tax advisor, to make sure he sets the gifts up in such a way that he doesn't run afoul of IRS regulations or the law.
You're lucky to have such a nice father-in-law; and you certainly wouldn't want him to get in trouble, when he's just trying to be nice.
Bill
Stuart Bronstein wrote: ...
Just for some additional clarification to OP...
That's also assuming the assets to be disposed of are in joint ownership w/ his wife, of course, since the limit is $12K/year per person (both donor and donee).
No, that's absolutely incorrect. Even if all the property is owned by one of the spouses, they can elect to treat it as if it came from each equally. See IRC §2513.
Stu
Any complication or warning regarding the daughter? If she is a minor, can the parents still accept that money and put it into the house, or pay debts? As minor, does that daughter even have the legal right to pass the gift along? And if she's an adult, isn't this the same question we debated some time back? That you can't prearrange passing this kind of money around?
Joe
If the daughter's a minor the parents can accept the gift on her behalf, as long as they keep it for her and manage it prudently. It would be best to have it in the name of a Uniform Gifts to Minors Act trust, but it may not be necessary, probably depending on local state law.
No, this has nothing to do with giving a gift to one person and having that person gift it to another. This is one person making three separate gifts. And if he's married, two people are treated as each making three separate gifts.
Stu
But in this case, is a gift tax return required to authorize the gift splitting, though no gift tax will be due?
Yes. But not only will no tax be due, no tax will be incurred.
Stu
I stand corrected, sorry I'll go stand in my corner again... :(
My daughter is not a minor, that may help, and yes, I do have a wonderful father-in-law, I just want to make sure that there is no unfair burden on him. Thank you everyone so far for you help, I really do appreciate it!
But are the two parents going to use the daughter's money to pay-off THEIR bills and buy THEIR house? That's kind of what it sounds like, but I could be incorrect (and I think this may be what Joe was getting at).
How does that benefit the daughter? Will the daughter have ownership in the home?
You're right, it can't be a sham. The daughter would have to be the actual recipient. If the gift is of title to real property the daughter should be listed on the deed. If it's of cash, the daughter (over 21 as OP said) would have to have the money put into her own name.
Stu
or the daughter could start paying rent.
"Gil Faver" > daughter (over 21 as OP said) would have to have the money put
With the money she was given, because it can't have gone into the property if her name wasn't on it somehow.
Stu
snipped-for-privacy@aol.com wrote in news:e8260215-be89-45fa-90af-78869aac2284 @x41g2000hsb.googlegroups.com:
I'm no expert at all, but couldn't the father-in-law sell the property and invest (part of) the proceeds in a new property (chosen by the family?) and then gift the property in stages to them? Another part of the proceeds of the sale could be a direct monetary gift to help them pay their debts.
Yes, that can work sometimes. The drawback is that the property would have to be reappraised every year, and there's a cost to that. The property would probably go up in value over time, so it would take more time to transfer the entire amount.
On the other hand they won't have to worry about imputed interest if they do it that way.
Stu
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