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Hi,
Can someone interpret this for me?

"For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield just shy of $11 million ($10.98 million) from federal estate and gift taxes. The annual gift exclusion remains at $14,000 for 2017."

Does this mean an individual can give $5.49M in TOTAL without paying tax, but only $14K per year? I don't get it. It would take lifetimes for $14K to add up to $5.49M!

The bottom line question I have is how can my mother gift her sons $300K all at once without paying tax? Is that possible or is it limited to $14K per year?

Thanks,
RB
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I believe yearly gift tax is limited to the $14 K per individual. I believe the total that can be passed upon death is the ~$5 MM. So only after she passes can the total amount be distributed tax free. Each year she can gift the $14 K to any/everybody she wants tax free.

You might want look at Pub i709:

https://www.irs.gov/pub/irs-pdf/i709.pdf
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Does this mean an individual can give $5.49M in TOTAL without paying tax, but only $14K per year? I don't get it. It would take lifetimes for $14K to add up to $5.49M!

No. The $14,000 exclusion for 2017 (which has been increased to $15,000 for 2018) is excluded from the gift tax reporting provisions (as implied by the term "annual gift exclusion"). It's only when one person gives more than $15,000 to another person (in 2018) that they will have to report the gifts. They will do so by filling out a gift tax return (Form 709 https://www.irs.gov/pub/irs-pdf/f709.pdf ). Filling out that return will track the amount of gifting that occurs during the person's lifetime. If the limit (increased to $5.6MM in 2018) is exceeded, either during the person's lifetime, or by their lifetime gifts plus their estate, a gift/estate tax will be payable by the giver/estate.

The bottom line question I have is how can my mother gift her sons $300K all at once without paying tax? Is that possible or is it limited to $14K per year?

Again, the limit is $15,000 for 2018. To give a total of $300k divided evenly among fewer than 20 people, your mother will have to fill out a Form 709. As long as the $300k does not put her over the $5.6MM limit of total lifetime giving, she will not have to pay any tax for this gift. Assuming that she has not previously documented gifts in excess of the gift tax limit on Form 709, this gift will decrease her limit of additional gifting/estate to $5.3MM

I would strongly suggest that your mother consult an estate planning attorney prior to doing any DIY estate planning/gifting.

AJ
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Your mom can give as much as she likes. If it's over $14k per year, she just needs to include IRS Form 709 when she files her taxes.

There will be no tax consequences at the time of the gift. After she dies, there might be taxes then depending on the size of her estate.

Without knowing the reason(s) for this gift, I will add that if this is part of an asset-protection plan, you should note that Medicaid has a 5-year look-back. Also, Medicaid doesn't cover assisted living places anyway, just nursing homes, and not even all of those.
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I would strongly suggest that your mother consult an estate planning attorney prior to doing any DIY estate planning/gifting.

I second this. I will add, though, that when my dad consulted an eldercare attorney, the attorney recommended that Dad:
- Buy a more expensive house, as Medicaid doesn't count the value of real estate when considering whether the person qualifies for assistance (this varies by state).
- Give the remainder of his money to his grown children ASAP, and cross fingers nothing bad happens until after the Medicaid 5-year lookback.

Luckily, Dad did none of that. Also luckily, he'd already seen an estate planning attorney, so he had a will, trust, advance medical directive, power of attorney, etc, already set up.

What the estate planning or eldercare attorney will advise depends on whether "asset protection" is one of your stated goals.
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Thanks everyone.

She has never given gifts before and will never again. Just the $300K this one time. If she does at all. We are just doing some research and consideration first relative to qualifying for spousal VA benefits. I doubt it's going to work out, but just gathering data now.

Given that she will never get anywhere near the $5.5M lifetime limit, she can give the whole $300K in one year without paying tax. Just has to fill out the form.
Right?

Thanks again,
RB
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She has never given gifts before and will never again. Just the $300K this one time. If she does at all. We are just doing some research and consideration first relative to qualifying for spousal VA benefits. I doubt it's going to work out, but just gathering data now.

Given that she will never get anywhere near the $5.5M lifetime limit, she can give the whole $300K in one year without paying tax. Just has to fill out the form.
Right?


Yes, but, again, I would strongly suggest that she consult with an estate planning or elder care attorney who is familiar with qualifying for spousal VA benefits before gifting any money, or taking any other actions, based solely on research her family has done - assuming that none of you are an attorney familiar with claiming spousal VA benefits, since you wouldn't be asking these questions if you were. If you/she mess this up, there probably isn't any going back, so you need to consult someone who truly understands the requirements, rather than just asking about stuff on message boards, or finding it using google.

If there are asset limit tests for these benefits (which is why I would assume that she would be giving assets away), there are likely to be lookback clauses, just like with Medicaid. However, with Medicaid, there is a way around having to give away assets, by purchasing a particular type of SPIA (Single Premium Immediate Annuity) and having it pay the money back to her over a certain time frame. There may be something similar for VA benefits. If there is, and she takes advantage of it, the money can stay in her estate for her to spend as needed, and if it's not needed, you will get a step up in basis in any assets she has invested.

And the lifetime limit for 2018 has actually been doubled to $11.18MM (from the previously announced 2018 limit of $5.6MM) due to the TCJA legislation - the $5.49MM that you were referencing was the limit in 2017. (The fact that you seem to be okay with quoting old limits is one more reason why I'm assuming none of you are attorneys.)

AJ
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The assisted living places I’m looking at for my dad partner with financial consultants who help residents apply for VA benefits. They also arrange bridge loans so seniors can move without first selling their houses, and help with moving and selling. From other posts, OP’s mother is already in an AL facility, in FL? There should be someone there with info.

Of course, he should also consult his own lawyer, especially before doing anything irrevocable. I would hope the info he’s gathering from other sources is just homework to prepare for his meeting with his lawyer.
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She has never given gifts before and will never again.


One thing to remember is that gifts include things other than just money. Has she never given a birthday gift or Christmas present or transferred an old car to one of her children? While the monetary value of such gifts may not be high enough to be a consideration in this case, they may well be for others who are reading this thread.
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AJ,
Thanks for your advice.
I am consulting with a guy from Senior Benefits Consulting. He is the one who suggested she could gift her money to reduce the assets below the limit. But I'll ask him about look back periods.

So far my conclusion is it's not going to work. If she gifts her money, her dividend income will dwindle more than the VA benefit! I suppose we could invest it for her and give her the income.

He also suggested putting the money in an annuity. But then she'll get income that could get her above the income limit! Plus annuity income is lousy compared to the dividend income she is getting.

Anyway, it just doesn't feel right altogether.

Thanks,
RB
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He also suggested putting the money in an annuity.

Does he, perchance, sell annuities?
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I am consulting with a guy from Senior Benefits Consulting.

I would still suggest that you/Mom talk to an attorney, not just a consultant.

If she gifts her money, her dividend income will dwindle more than the VA benefit! I suppose we could invest it for her and give her the income.

Okay, since you are seeing "we could invest it for her" it sounds like you are expecting her to sell whatever investments she has, and actually give you money. Presumably, you have calculated any/all capital gains taxes she would be responsible for when she sells?

Alternatively, she could directly gift you the dividend paying stocks, and you *could* gift the dividends back to her without any gift tax issues, assuming that each son were giving her less than $15k/year. The dividends would not be considered income to her, since they are gifts from her sons. You (the sons) would be receiving the income, so you would be responsible for any taxes (just like she would have if she had received it) - so you might want to hold back part of the income received to account for the taxes. You would have to be sure to keep the records of her basis in the stock, since the basis for gifted stock is the basis that the original owner had.

There are some downsides to this:
- Since the stocks would now be held in the sons' names, if any of the sons get into an issue where there are credit or liability issues, these stocks could be seized to satisfy the issue
- As mentioned, the sons would have the income on their tax returns, which may end up costing more in taxes than if Mom continued to hold it
- Mom would have to trust that the sons would actually hold up their part of the bargain and gift her the dividends back

He also suggested putting the money in an annuity. But then she'll get income that could get her above the income limit! Plus annuity income is lousy compared to the dividend income she is getting.

Are you sure about the annuity income putting her above the income limits? For Medicaid, there is a way that an annuity can be used to bypass income requirements, and still give money to the spouse. I think it's called a "Qualified Income Trust" It may be that there is something similar to qualify spouses for VA benefits. Even though the annuity income might be 'lousy' compared to the dividend income she's getting, if it's combined with the VA benefits, would it be more than she's getting now?

That said - I agree with 2gifts that if the consultant also happens to be the annuity salesman, that's a big red flag, and even more reason for you to be working with an attorney instead of the consultant.

AJ
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