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aj485 writes,


If the borrower can provide account statements showing that the money has been in their accounts for at least 2 full months before the loan is applied for, the lender won't need to ask for documentation of the gift.

</snip>


Or you could just pay cash for the home. It's amazing how much paperwork disappears if you buy a home for cash.

intercst
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It's the maximum annual amount a wealthy couple can give to a child without triggering the Federal Gift Tax. Very common for rich kids pursuing low-paid jobs in New York or other expensive areas.

They are out of date. The gift tax amount was increased to $15,000 per individual for 2018, for a total of $30,000 per giving couple, like the writer's parents.

In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.

AJ
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In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.

Now there is a good reason to get married young.

Andy
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aj485 writes,

In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.

</snip>


Even better -- and that $60,000/yr in annual income doesn't count against an Obamacare tax subsidy. You could qualify for a $0/month Bronze Plan, or even a Gold-Plated Medicaid Plan with no deductibles or co-pays.

intercst
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Even better -- and that $60,000/yr in annual income doesn't count against an Obamacare tax subsidy. You could qualify for a $0/month Bronze Plan, or even a Gold-Plated Medicaid Plan with no deductibles or co-pays.

But you also have to be careful of not having *enough* income to qualify for subsidies - you have to make at least the Federal Poverty Level for your household size and place of residence, or you aren't eligible for subsidies. So you can't be living just off of Mom & Dad's gift money.....

AJ
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In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.

A prescription for keeping your kids eternally dependent on the parents, with zero need to ever grow up.

Not for this family, thanks. IMO a parent's job is all about helping their kids become independent.

IP
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In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.
========================
A prescription for keeping your kids eternally dependent on the parents, with zero need to ever grow up. Not for this family, thanks. IMO a parent's job is all about helping their kids become independent.

=======================
Well, yes. But rarely would this be an annual exercise, except in the richest of families, where I have seen it in some cases. (And actually, those folks often use stock instead of cash.)

But it is good to know what's technically possible, for situations like helping your children have a downpayment on their first house.

Bill
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In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year.

A prescription for keeping your kids eternally dependent on the parents, with zero need to ever grow up.

Ongoing annual gifts like that aren't for us hoi polloi. They are for the uber wealthy who are following the law to transfer as much of their estate as possible to their children free of estate taxes.

--Peter
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It's the maximum annual amount a wealthy couple can give to a child without triggering the Federal Gift Tax.

The maximum annual amount changed in 2018. Each parent can give $15,000 to a relation without triggering the Federal Gift Tax.

My wife and I gave our youngest daughter $30,000 to use for a down payment on a house. We could have gotten carried away and given another $30,000 to her husband but nixed that idea as far too generous considering what we had given to her older brother and sister for their first homes.

The one thing interesting about this gift is that the banks, now, required us to fill out forms that this was a gift and documentation indicating that we had actually transferred the money to her. Didn't have to do that for her brother and sister. I guess the times have changed.
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The one thing interesting about this gift is that the banks, now, required us to fill out forms that this was a gift and documentation indicating that we had actually transferred the money to her. Didn't have to do that for her brother and sister. I guess the times have changed.

Not sure when you provided money to her siblings, but if the gift was made within 2 or 3 months of when they applied for the loan, at least a gift letter would have been required, at least as far back as 2002. I know that because in 2002, I had to move some money around to get a mortgage, so there were some large deposits showing in the 2 months of my account statements that I had to supply to the lender. The lender wanted an explanation of where the large deposits came from, and specifically said if it was a gift, I would need a gift letter.

I would agree that the gift documentation has become a bit more formal - it used to be that you could just send your own letter and that would be accepted. However, when I gave a gift to my nephew a couple of years ago, the lender had a form that I had to fill out - they didn't want to accept just the letter. But there's been a requirement to document gifts, at least using a letter, for quite a while.

If the borrower can provide account statements showing that the money has been in their accounts for at least 2 full months before the loan is applied for, the lender won't need to ask for documentation of the gift.

AJ
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aj485 writes,


If the borrower can provide account statements showing that the money has been in their accounts for at least 2 full months before the loan is applied for, the lender won't need to ask for documentation of the gift.

</snip>


Or you could just pay cash for the home. It's amazing how much paperwork disappears if you buy a home for cash.

intercst
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Or you could just pay cash for the home. It's amazing how much paperwork disappears if you buy a home for cash.

If a person is accepting a gift as part of their down payment, it seems very doubtful that they can pay cash for the home.

PSU
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If a person is accepting a gift as part of their down payment, it seems very doubtful that they can pay cash for the home.

not sure i understand your reasoning. if you accept a gift, it means you have more than you would have had had you not accepted the gift. our daughter and son-in-law paid cash for their home. gifts from both sets of parents helped that happen. without the gifts they would have needed to take out a mortgage.

accepting a gift does not mean that you are destitute.

c.
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not sure i understand your reasoning. if you accept a gift, it means you have more than you would have had had you not accepted the gift. our daughter and son-in-law paid cash for their home. gifts from both sets of parents helped that happen. without the gifts they would have needed to take out a mortgage.

accepting a gift does not mean that you are destitute.


My reasoning is simple. I'm going with the percentages. Your daughter and son-in-law are not typical.

PSU
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Why is there a gift tax in the first place? If I want to give my kid, say, $70,000 of my after-tax savings, why is that a taxable event?

And who would actually report and pay such a tax, especially if the gift was made over several months and in smaller-than-$10,000 amounts?

Just wonderin',

Tom
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Why is there a gift tax in the first place?

Without the gift tax you could game the estate tax by giving all your money away before you die.
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Why is there a gift tax in the first place? If I want to give my kid, say, $70,000 of my after-tax savings, why is that a taxable event?

It's not a taxable event unless you've exceeded your lifetime exemption amount, which for 2018, is $11.8MM per person, so a married couple can shelter nearly $24MM without having to pay any tax. The exemption amount in 2017 was $5.49MM per person - the TCJA doubled the exemption amount. There has been a lot of discussion in the past about eliminating the Federal estate tax, which would effectively do away with the gift tax. But until that happens, there is a Federal tax if you give away more than the lifetime exemption amount.

And who would actually report and pay such a tax, especially if the gift was made over several months and in smaller-than-$10,000 amounts?

Again, it's not necessarily that you have to pay a tax. It's that you are required to file a Form 709 reporting the gift. There are penalties for failure to file a Form 709 when required, and additional penalties for failing to pay a gift tax when due. That said, most of the penalties are based on the amount of gift tax due, so for everyone who doesn't owe any gift tax because they haven't given away more than $11.8MM, there would effectively be no penalty. But you would still have to deal with the IRS and show them why you didn't owe any gift tax, if they sent an inquiry, or a demand for payment.

But to the larger question of why would anyone file a gift tax form when required - why does anyone file any tax forms when they are required? The tax system in the US is based on voluntary compliance, with the big stick of the IRS determining that you are out of compliance based on reporting that they receive.

And speaking of reporting - keeping transfers under $10k does not necessarily avoid reporting of suspicious activity by financial institutions. If you do multiple transactions that would add up to more than $10k, they can and do report that, too.

AJ
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aj485 writes,

And speaking of reporting - keeping transfers under $10k does not necessarily avoid reporting of suspicious activity by financial institutions. If you do multiple transactions that would add up to more than $10k, they can and do report that, too.

</snip>


I'm pretty sure that lack of a Form 709 outed former Speaker of the House Denny Hastert as a pedophile.

https://en.wikipedia.org/wiki/Dennis_Hastert#Child_sexual_ab...

intercst
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Without the gift tax you could game the estate tax by giving all your money away before you die.

Of course, we know that there are many who ask, "why is there an estate tax?" making the thesis irrelevant...

Pete
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My parents give me $28,000 a year

Coincidentally, I recently read an article titled something like "How to survive in New York on $XXX." That $XXX covered the costs plus weird things I'd find extravagant... a really expensive gym, weekly pedicures an manicures, massages, etc. What blew it open for me was at the very end of the article, in tiny type, they noted how the subject's parents subsidized the $30K she earned with another $25K. That's fine if you're lucky enough to have those parents, but for Pete's sake don't write and article holding her up as an example on "How to make it" somewhere costly.
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"In fact, the writer's parents could also be giving the writer's wife $30,000/year, for a total of $60,000 per year."

A prescription for keeping your kids eternally dependent on the parents, with zero need to ever grow up.

Not for this family, thanks. IMO a parent's job is all about helping their kids become independent.


Ditto on the bolded part.

We ran into a lady on our recent cruise (28 days to the South Pacific--nobody was anything close to being poor), who remarked that she had told her kids that they would be getting NOTHING when she died---only her grandkids (their children) would be getting the inheritance.

Every once in a while we ponder if we really want our kids to get $500K to $1M each when we die. Seems like a sure way to help them screw up their life. If they are 40 or 50 and not already financially successful, such a windfall will likely fall on sterile ground.
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"Every once in a while we ponder if we really want our kids to get $500K to $1M each when we die. Seems like a sure way to help them screw up their life. If they are 40 or 50 and not already financially successful, such a windfall will likely fall on sterile ground."

I am trying to follow the formula laid out by Mom and Dad.

They lied. They were the most honest people I ever knew but they mislead me on this. Or withheld information and let me draw false conclusions. They traveled all around the world and told us they were 'spending our inheritance.'

They told us our education was our inheritance.

They lived a good life.

When I was nearly 60 I took over Dad's finances and discovered (for the first time) that they had a lot more than we knew.

When Dad died at the age of 93 I was nearing 60 and on the cusp of having enough to retire on.

Because I never counted on them for anything, my inheritance was enough to enable us to retire comfortably at the end of this year just short of my 63rd birthday.

The key is to do what all corporations do. Manage expectations by erring on the side of underpromising.

We are retiring a little bit early, planning to go and do whatever we want, and if our kids receive an unexpected inheritance, it will be a (hopefully pleasant) surprise.
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They lied. They were the most honest people I ever knew but they mislead me on this. Or withheld information and let me draw false conclusions. They traveled all around the world and told us they were 'spending our inheritance.'

They told us our education was our inheritance.


I wouldn't say we are lying, since it really is our intent to spend it all, but you could be quoting us. In fact we even joke with Eldest, who has done well since he left college last year, that we now feel comfortable that we can move in with him if finances go wrong. We tell him our investing in his degree has paid off.

But realistically, even with retiring in our 50's it is unlikely we will spend it all. We are just not spenders. And now that we are in the car together a lot more, there is a serious hit by a bus potential. With both kids in their early 20's and one still in school, that could be ruinous. Not sure how to address protecting them from excess. Further compounding the issue is that 2/3 of the funds are in IRAs, which I don't believe could be held in a trust. It's definitely time that we figure this out and identify some professionals to talk to.

IP
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We ran into a lady on our recent cruise (28 days to the South Pacific--nobody was anything close to being poor), who remarked that she had told her kids that they would be getting NOTHING when she died---only her grandkids (their children) would be getting the inheritance.
----------------------------
I don't see the wisdom in going that route, either. Odds are the grandkids would be at least as likely to blow through a windfall inheritance. A longer history of life experience is good for something.

Every once in a while we ponder if we really want our kids to get $500K to $1M each when we die. Seems like a sure way to help them screw up their life. If they are 40 or 50 and not already financially successful, such a windfall will likely fall on sterile ground.
-------------
Well, at 40, and certainly 50, they should have their act together, but especially at 40, may not have a lot of assets accumulated, considering what they've done as far as acquiring a home, paying for children's education, and saving for retirement, which is still money they can't spend currently. At that stage in life, $500K or even $1 mill. isn't going to allow you to retire, but it might make life a lot easier.

Bill
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inparadise: "But realistically, even with retiring in our 50's it is unlikely we will spend it all. We are just not spenders. And now that we are in the car together a lot more, there is a serious hit by a bus potential. With both kids in their early 20's and one still in school, that could be ruinous. Not sure how to address protecting them from excess. Further compounding the issue is that 2/3 of the funds are in IRAs, which I don't believe could be held in a trust. It's definitely time that we figure this out and identify some professionals to talk to."

Why do you think that the IRAs cannot be held in trust? Search qualified trust. But there ere even more rules with respect to IRA's in trust.

See, e.g., https://www.aaii.com/journal/article/inherited-ira-rules-for....

Read down the link:

A Trust Inherits the IRA

The IRS lists specific rules describing what a qualified trust is.

The trust must be valid under state law, or would be for the fact that there is no corpus,

The trust is irrevocable or becomes irrevocable upon the owner’s death,

The trust’s beneficiaries are identifiable from the trust instrument, and

The trustee of the trust provides the necessary documents to the IRA custodian or trustee (e.g., the brokerage firm). This documentation must be provided by October 31 of the year following the death of the IRA’s owner.

https://thewiseinvestorgroup.com/Wise-Investor-Files/Public/...

https://ultimateestateplanner.com/wp-content/uploads/2014/07...

Regards, JAFO

Disclaimer

Yes, I am a lawyer, BUT THIS IS NOT LEGAL ADVICE; it is only general information. NO CLIENT RELATIONSHIP IS INTENDED TO BE CREATED, NOR IS ANY SUCH RELATIONSHIP SO CREATED. FOR SPECIFIC LEGAL ADVICE YOU SHOULD TALK TO A LAWYER IN YOUR AREA.
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Extremely helpful. Thanks, JAFO.

IP
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IP: You are welcome, but hire knowledgeable lawyer (not me in this area) to write the trust for you.

Regards, JAFO
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...but hire knowledgeable lawyer (not me in this area) to write the trust for you.

Yeah, absolutely. There is a lot I know well enough to do on my own but this clearly is not one of those things.

DH recently inherited a small amount of money through a trust that was done through a lawyer who has since retired. Even the other lawyers in his office have little clue as to what the heck the trust says. I am not looking to leave a mess like that for the kids to deal with, particularly since they will probably have to deal with their grandparents mess as DH and his siblings are largely just ignoring it and passing the problem down to the next generation. At least the CPA who administers it is getting something out of it, and frankly it was hard to find someone willing to take it on.

IP
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Maybe she didn’t like her kids?

Our kids are our first inheritors but if all 4 of us are in that accident I question who should be secondary.

I have two siblings but they’re dumb with money, married to spenders who’d blow it on endless unnecessary decorating or motorcycles and cars. They’ve managed to get close to retirement age with next to nothing. I’m tempted to leave it to nieces and nephews who seem more mature at 30s than their parents are at 60. Part of me says that’s too harsh...so I debate. But if they end up homeless maybe their kids would take them in with the $$
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Nieces & nephews is a good choice.

For DH’s & my “catastrophe scenario,” half goes to his siblings (or their heirs), half to my nieces & nephews.

Indirectly, as it happens. Years ago a childless uncle set up a foundation to grant college scholarships to family, so half of DH’s & my estate would go to the foundation. This would benefit my nieces & nephews and/or their children, probably. (If I didn’t have the foundation option, I’d just designate the n&n directly.)

Small odds, of course, but better to specify and not need that branch of the flowchart, than to leave it to chance.
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My secondary refers to my most recent tax return and divides the estate among the charities listed in the same proportions.

Having been through significant difficult times in my life and seeing who stepped up, this one was easy.
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Our kids are our first inheritors but if all 4 of us are in that accident I question who should be secondary.

We have it set up similarly where the kids get everything. After that, it goes to a couple of specific charities. We considered other relatives, but my brother is 15 years older and will most likely pre-decease me. Both of his kids could buy and sell me, so they don't need it. DH has 4 siblings and a half sibling, but is not very close to any of them, so we decided we'd rather give the money to charity where it can help a lot of people instead of to relatives who we don't know anyhow (we have never met his sister's youngest child, who is about 15 years old, as they live in CO). We'd rather try to do more "global" good than be that rich aunt and uncle that leaves a windfall.

We just made this change on our last update of the estate package. I figure we will have at least one more update in our lifetimes, and so things could change again.

The other thing we did was to change the back-up Executors so that now DD is the back-up, and then DS. My kids are twins, but DD is much more equipped to handle such a task than DS, so she gets that honor. If DS is the only one left at some point, it won't matter much on how well he can handle Executor duties since it will all be his at that point.

The kids know we have done all of this, and are good with it, but they are also expecting us to spend every penny. I prefer this so that they can make their own future plans without counting on an inheritance, and whatever they get will be gravy. Even if we do spend all the $$, there will still be the house, and so they will realistically see an inheritance.
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My secondary refers to my most recent tax return and divides the estate among the charities listed in the same proportions.

Not to be a Debbie Downer, but what happens if you no longer have enough deductions to itemize on your most recent tax return? Or what if you spend a couple of years in a nursing home and stop making charitable contributions?

It might be safer to name some specific charities, and amend the list from time to time.

--Peter
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Honestly, other than my son, I don’t really care where the money goes. I doubt I will spend years in a nursing home. But when I stop skiing, biking, rowing and traveling, I will consider the other possibilities.

I know the media wants me to believe that I will be frail and in poor health any time now but fortunately, I live in an area with great role models. If something happened to my son, I will reconsider the secondary for my estate.
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