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Author: SteveK3 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121216  
Subject: Gifting and Estates Date: 9/18/1998 9:58 AM
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My mother-in-law wants to "give" money to my wife and her brother to remove capital from her estate in anticipation of nursery home sell-off requirements or death in the future.

Some questions if I may...

1. Can she AND my father in law gove $10,000/year to wife and brother?
2. Is this $10K free from income taxes for the "children"?
3. If in the future, she has monetary needs, and they give her some money (back), what is the effect?
4. Can they also gift teh childrens' spouses? What limits?

Thanks
Steve
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Author: DowDanny Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5381 of 121216
Subject: Re: Gifting and Estates Date: 9/18/1998 10:29 AM
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>> My mother-in-law wants to "give" money to my wife and her brother to remove capital from her estate in anticipation of nursery home sell-off requirements or death in the future. <<

"Reducing one's estate" is legitimate, but you may have some problems if you are "disposing of assets in advance of applying for medical aid" - more later.

>> Some questions if I may...

1. Can she AND my father in law gove $10,000/year to wife and brother? <<


No problem - $20,000(10,000 from ma, 10,000 from pa) to each wife and brother. Any more than that and you run into 'tax implications'.

>> 2. Is this $10K free from income taxes for the "children"? <<

Absolutely.

>> . If in the future, she has monetary needs, and they give her some money (back), what is the effect? <<

This one is more complicated, I think - I leave general answer to TMFTaxes.
One thing to worry about is that Medicaid (and many nursing homes) look very hard on distributed assets that were given away just before entering their system. In some cases, they go back and include 'disposed' assets from up to several years earlier when determining income, assets and aid level. This can make it difficult and confusing if you are in process of selling a house or business of relative at same time elderly relative is reaching age where they need professional care. You better check carefully on the rules for the programs/places you intend to use.

But I do KNOW that you (or your wife, etc...) can make UNLIMITED contributions to the medical expenses of your parents. That means any nursing, medicines, etc... so long term care may also qualify, depending on where they are. The only hitch here is that the payment must go DIRECTLY to the provider, not to your parents to pass on to the doctors/hospitals.

Conversely, when your parents are in the 'distribution phase' they can make UNLIMITED contributions to your childrens' educational expenses {can you say "pay tuition at Harvard} as long as they do this directly to the provider. No tax consequence for either form of 'support'.

>> 4. Can they also gift teh childrens' spouses? What limits? <<

Individuals can give $10000 (tax-free to both provider and receiver) to ANY BODY (and everybody) they elect.
that is how Mrs. R. Kroc gave away millions to the flood victims of her home town. There is no limit on who may receive the gift, nor on how many people can be gifted. The only limit is "$10,000 per individual gift from each individual". Thus - your ma-and-pa could together give you-and-your-wife a total of $40,000 tax free per year.

If it gets any more complicated than that you're best off discusscing with a profressional, and not with some guy on the internet.

Good Luck !

-DD

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5382 of 121216
Subject: Re: Gifting and Estates Date: 9/18/1998 1:00 PM
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<Steve3K writes:

My mother-in-law wants to "give" money to my wife and her brother to remove capital from her estate in anticipation of nursery home sell-off requirements or death in the future.

Some questions if I may...

1. Can she AND my father in law gove $10,000/year to wife and brother?
2. Is this $10K free from income taxes for the "children"?
3. If in the future, she has monetary needs, and they give her some money (back), what is the effect?
4. Can they also gift teh childrens' spouses? What limits?


I reply:

The general rule is that any person may give $10,000 per year to any other person without gift and estate tax consequences. The recipient of a bona fide gift never owes taxes on receipt of the gift, although the recipient might owe capital gains taxes (based on the donor's tax basis and holding period) upon sale of a gift other than money. I read your question as discussing a gift of cash, though, so these concerns are not implicated.

Thus, the answers to questions 1, 2, and 4 above are yes, yes, and yes (up to $10,000 per year). As to question 3, as long as the return is truly voluntary, I imagine that there are no tax consequences up to $10,000 per year. However, I believe there are non-tax regulations regarding give-aways in anticipation of nursing home requirements, especially if the nursing home is federally funded. --Bob

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Author: gapfan Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5387 of 121216
Subject: Re: Gifting and Estates Date: 9/18/1998 5:35 PM
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Just a suggestion on the gifts to others. If you keep each gift separate, as with separate checks of $10,000, it may avoid complications. I always go slightly less (e.g. $9950) so that any other gifts such as birthday gifts do not push the total over $10,000 in any single year.

I believe that banks and other institutions may need to provide the federal government with transactions >$10000, perhaps for money laundering schemes, so keeping a check <$10000 can avoid this. I am not sure of this last point.

An IRS individual suggested to me that the best way for gifting was individual checks by the specific individuals to specific individuals if that is possible.

Good luck, gapfan :-)

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5389 of 121216
Subject: Re: Gifting and Estates Date: 9/18/1998 8:06 PM
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[[My mother-in-law wants to "give" money to my wife and her brother to remove capital from her
estate in anticipation of nursery home sell-off requirements or death in the future.]]

Between everybody that responded, I believe that you received great responses to your questions. I'll just deal with a few fine points.

As far as "giving" the money back, if the IRS can show that the original gift was nothing more than a sham, it can unwind those original gifts. It is certainly not that difficult for Uncle Sammy to make this case. What person in his right mind would give away money that they would need in the future? And isn't it odd that the (now) "needy" person goes back to the original gift person for the "re-gift"? Even though simply circumstancial, it is difficult to refute that the originaly gift didn't have "strings" attached in some way, shape, or form...which would not make it a gift at all.

Sure, your response is that you love your mom and and you are just trying to take care of her. But IRS would still hammer the point that it was "understood" that if mom ran out of money, she could turn to you to get the needed funds. Again, a pretty good basis for IRS to say that there was no additional gift.

As far as "bankrupting" mom so that she will qualify for medicaid, you must be very careful. There is a 36 month "lookback" period (60 month lookback period if transfers are made to a trust). So you'll have to wait a period of time before she could really apply for medicaid.

Not only that, effective 1-1-97, whoever knowingly disposes of assets in order for an individual to become eligible for Medicaid may be subject to criminal fines or imprisonment. Criminal liability can also extend to anybody involved in advising or planning such transfers, including lawyers, financial planners, and family members. So if this is what you are contemplating, make sure that ANYTHING you do is within the law.

Hope this helps a bit...
TMF Taxes
Roy

SPECIAL NOTE: Remember that this response is not the "last word" on your situation. It is really only a starting point. Make sure to review the "Read This First" post
(http://www.fool.com/School/Taxes/TaxesDisclaimer.htm) for additional information. In addition, many of your questions may already be referenced in the Taxes Frequently Asked Questions area. In order to visit the Taxes FAQ area, go to the Fool's Money area (http://www.fool.com/money.htm) and check out "Tax FAQs" in the list box, OR you can jump directly to the Taxes FAQ area (http://www.fool.com/school/taxes/taxes.htm). Additionally, if any references were made to the IRS Web Site, you can get there by pointing your web browser to (http://www.irs.ustreas.gov).


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Author: MTBnd Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5391 of 121216
Subject: Re: Gifting and Estates Date: 9/18/1998 8:19 PM
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<< I believe that banks and other institutions may need to provide the federal government with
transactions >$10000, perhaps for money laundering schemes, so keeping a check <$10000 can
avoid this. I am not sure of this last point. >>

Technically speaking, you've violated the Money Laundering statutes if you manage the transaction amount under $10,000 in order to avoid the reporting aspect -- This is known as "Structuring".

But this is silly - nobody is gonna call you on this - the gov't sees over 60,000 of these reports (CTR's - Currency Transaction Reports) annually and is simply looking for patterns. Unless you're giving away $10k to a lotta people (sign me up!), the 'dog won't bark'.

Sorry - this one got me going - among other things, I work on money laundering detection systems...

MTBnd

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Author: SteveK3 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5447 of 121216
Subject: Re: Gifting and Estates Date: 9/23/1998 7:39 AM
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[[My mother-in-law wants to "give" money to my wife and her brother to remove capital from her
estate in anticipation of nursery home sell-off requirements or death in the future.]]
===========================

Thanks to everyone that responded. Most of my assumpions were supported, though gratefully clarified. I have no intent to do anything that pushes the window of legality, ethicality (?) or morality on this issus, but alas, I am the in-law in this, and the only Fool.

Thanks alot.
Steve

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5462 of 121216
Subject: Re: Gifting and Estates Date: 9/23/1998 12:33 PM
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[[Thanks to everyone that responded. Most of my assumpions were supported, though gratefully
clarified. I have no intent to do anything that pushes the window of legality, ethicality (?) or morality
on this issus, but alas, I am the in-law in this, and the only Fool.]]

I certainly didn't meant to imply that you WERE going to push the envelope, Steve. And if it sounded that way, I certainly apologize.

It is just that most people don't know all of the issues involved. You most likely now know more than 95% of the total population on this very issue. But that being said, we have really only scratched the surface on the entire matter.

If the estate is substantial, it may be time to call in an attorney with a speciality in elder care. There are still a number of LEGAL moves that you can make in order to accomplish the sale goals. But it must be done with sufficient knowledge, and by the letter of the law. And you'll certainly need help on both of those counts.

Again, sorry if I implied that you were looking to do something legally, morally, or ethically wrong. That was NOT my intention.

TMF Taxes
Roy

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