I recently inherited approx $800,000.I am in the process up setting of a diversified portfolio for the money.However I am perplexed as to one concern.Should the money remain in my father's name because he is 74 years old and his sources of income are social security and a pension.Or should I transfer the funds to my sister and myself to be invested seperately??If the money is not held in a retirement account of some kind, and the portfolio would be set up for moderate income in relation to long term growth.......in which situation would capital gains taxes, or other taxes be less??I earn $70,000 a year and my sister $26,000Any advice is appreciated,Thanks,-Matt-
If you "inherited" the money, somebody died. My condolences. To "remain" in your father's name that means HE inherited it, not you? His age has nothing to do with anything here. Or is he the one who died? If so there may be estate tax unless he has utilized one of the techniques for avoiding that. Who died? Under the terms of the will or the probate court, who does it belong to? If it belongs to you, as maybe your grandfather died and left YOU the $800000, you can gift $10000 a year to your father if you wish. If it belongs to your father, he can similarly gift $10000 a year to you, and another $10000 to your sister. Your terminology isn't consistent. It is therefore not possible to give an opinion without knowing more about the circumstances. Best wishes, Chris
thanks for the kind words.....My fater has just inherited the money from his "long-lost brother"California probate court is in the process of awarding my father sole heir to the money.What I am wondering is if my father has to keep the money in his name or can he split the money between my sister and myself and give it as a gift?Also, what are the tax situations regarding such an action?Thanks,-Matt-
OK, that helps. So it is your father's money. The estate will have to pay CA and federal estate tax, but that is not your problem nor your father's. Your father puts the money in an account in his own name. He can give you and your sister each $10000 annually without incurring gift tax. He can write a will giving you and your sister, or maybe his church or whoever, proportions when hedies. He might want to do a "revocable living trust" or any number of ploys to avoid estate tax being taken out of this little bundle on his death. If he puts your name or your sister's on the account, that is regarded as a gift in excessof the limit and gift tax will be due. Of course in the meantime he can pick up the tab for some nice dinners and vacations he might take with you and/or your sister, but as far as "gift", just $10000 a year each. If he gives you more than that, he (not you) must pay gift tax. Presumably you have said some prayers and visited the grave of the long-lost brother, who got found a little too late for you to know him well! Best wishes, Chris
To pick a few nits:He might want to do a "revocable living trust" or any number of ploys to avoid estate tax being taken out of this little bundle on his death.A revocable living trust isn't about avoiding or reducing estate taxes, it's about avoiding probate expense and delay. It also keeps things private, wills and probate being a matter of public record.Of course in the meantime he can pick up the tab for some nice dinners and vacations he might take with you and/or your sister, but as far as "gift", just $10000 a year each. If he gives you more than that, he (not you) must pay gift tax.Strictly speaking, this isn't correct. The $10K annual limit really covers everything - that is, the cost of dinners, little gifts, and vacations, as well as gifts of hard cash. That is, if dad gives each child $10K in cash, he really can't take them to dinner, to Hawaii or Europe, etc. without running afoul of the gift limit. Granted, this would be pretty hard to track down. Still... Incidentally, it's worth mentioning that if brother and sister have spouses, dad can give $20K to each family, $10K each to son, daughter, and son/daughter in law. Likewise if there are grandchildren, $10K to each. It's easy to get rid of money if you have lots of people to give it to! And to pick the last nit, dad won't actually pay gift tax - i.e. send money to the government - on amounts in excess of $10K per person. Rather, he'll just use up a little of his unified gift/estate credit, which means his eventual estate tax, if any, will be higher. The revenooers will get you in the end.
Thanks for the nits! Every time someone corrects me I learn a little bit more! Best wishes, Chris
Nit correction! I seem to have misspoken, several posts back, when I said that gifts included pretty much everything. Poking around a bit on the web, it appears that gifts are either money or property, period. And further, the property has to have a reasonable value, though that is never really very well-defined. That is, a Rolex watch counts as a gift, a $2 ballpoint pen does not. Taking someone out to dinner appears to be ok! And I just don't know about, say, taking a friend with you to Europe at a cost of $3000. I would have thought that that would be a gift, but maybe not... The short answer is that I really don't know what a gift is, and I'm sorry I ever said anything about it.
Tax law tends to humble even the most experienced tax person.The short answer is that I really don't know what a gift isActually you did define it very well. Cash and anything of tangible value. Since a meal is consumed, it has no value after you've eaten your dinner. If a medical bill is paid on behalf of someone, if the money never crosses the palm of the beneficiary, it's not a gift either. Same with school tuition. But if cash is actually given or title of an asset is transferred, then there is a completed gift. Getting back to the question at hand,What I am wondering is if my father has to keep the money in his name or can he split the money between my sister and myself and give it as a gift?The father can decline part of the gift, in which case the funds are passed to the next heirs in line. If there are no other heirs to your long lost uncle's estate, that would put you and your sister in line to receive the proceeds of the estate. This is a question for the attorney who is handling the estate.As others have stated, there is no tax paid by the beneficiaries. Assuming your dad will not give any more than 2/3 of the $800k, he will have no gift tax to pay, but he will have to file the form to show that no tax debt is owed.Best wishes
Just wanted to express my thanks for all the information posted here.It has been quite helpful....Thanks,-Matt-
What if my father put the money in a "joint" money market checking account?Does the same "gift tax" apply??-------I am interested in starting my own business. 100% of the capital used to finance start up would come from my father.How would I go about receiving the money towards the business, but neither of us being penalized for it by means of taxes?Thanks,-Matt-
I am interested in starting my own business. 100% of the capital used to finance start up would come from my father.How would I go about receiving the money towards the business, but neither of us being penalized for it by means of taxes?Your dad could do one of two things, either loan the money to you, in which case you're obligated to pay at least a minimum amount of interest. Depending on the month and the length of time for which the loan is extended determines the minimum rate IRS will allow. The second choice is that your dad could become an "investor" into your company. He can gift $10k annually to you, taxfree. Any greater sum necessitates a gift tax return. He has an lifetime exclusion, which is currently $675, but that sum will rise to $1 million 1/1/2002. He may be liable for filing a gift tax return, but as long as his total gifts to you and others that exceed $10k in any year, do not go above the allowed limit, there will be no tax due. Best wishes in your new business venture.
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