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My grandmother recently settled her mother's estate and is now worth a little over $1,000,000. Her son and daughter are each to receive half of her estate. She is currently 76. Right now my grandmother is gifting $10,000 to 6 different relatives (3 on each side) to draw down the size of her estate to avoid higher taxes later. Is this the best strategy? The daughter has more heirs and could receive more in gifting, but the brother feels that his sister should pay a percentage to him for getting more of her inheritance early. Any thoughts?
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cporrell said:
My grandmother recently settled her mother's estate and is now worth a little over $1,000,000. Her son and daughter are each to receive half of her estate. She is currently 76. Right now my grandmother is gifting $10,000 to 6 different relatives (3 on each side) to draw down the size of her estate to avoid higher taxes later. Is this the best strategy? The daughter has more heirs and could receive more in gifting, but the brother feels that his sister should pay a percentage to him for getting more of her inheritance early. Any thoughts?


Gifting is one of the best ideas to cut down on one's estate without Uncle Sam taking a bite. Apparently, your grandmother isn't presently married so I don't think she could do the living trust thing (unless she did already).

She could try buying life insurance for people. This is a way to avoid estate taxes (the policies will go to the beneficiaries estate and income tax free). I've come across "Charitable Remainder Trusts" which you could give something to a charity but still retain the interest.

In the end, the very best idea for your grandma may just be to spend it. :)

Misterbounce
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[[
My grandmother recently settled her mother's estate and is now worth a little
over $1,000,000. Her son and daughter are each to receive half of her estate.
She is currently 76. Right now my grandmother is gifting $10,000 to 6 different
relatives (3 on each side) to draw down the size of her estate to avoid higher
taxes later. Is this the best strategy?]]

BEST? That's impossible to say without knowing more about your grandmother and her estate. But it certainly is ONE way.

[[ The daughter has more heirs and could
receive more in gifting, but the brother feels that his sister should pay a
percentage to him for getting more of her inheritance early. Any thoughts?]]

That's up to grandma. If grandma wants to give the grandkids MORE money that brother fees is right and equitable...well...that falls under the "tough s***" doctrine. It's grandma's money...she can do what she wants to with it.

If everybody agrees that things should be "equal" between brother and sister, and brother doesn't have any other method to accpet additional gifts, then grandma will have to either stop gifting to the grandkids or gift MORE to the brother and begin to use up a bit of her unified credit.

And while a $1 million estate is not especially large, for a single person, some appropriate estate planning may save a few hundred thousand in estate tax dollars. So perhaps grandma should think about seeing a qualified estate planning pro.

TMF Taxes
Roy
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[[She could try buying life insurance for people. This is a way to avoid estate taxes
(the policies will go to the beneficiaries estate and income tax free).]]

BUT...the face value of the life insurance will be included in the decedent's estate...which could up the value of the taxable estate...and cause additional estate taxes to be paid. So if you go this route, you might be interested in an irrevocable life insurance trust.

But there are a number of ways to reduce the estate. If you are charitable, you can give it away now or in the future...or even trust around it now. But again, it all really revolves around a complete estate plan. Trying to plan an estate in bits and pieces many times causes more problems that it solves.

TMF Taxes
Roy
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Would it be possible to completely split the estate now between brother and sister? And if so, could sister, with more heirs, have more money gifted and thus reduce the size of the estate to insure less inheritance to Uncle Sam?
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Wait a minute! Where's the inequality or unfairness? Your grandma's gifts of $10K are to a number of different children and grandchildren, NOT to her son and daughter alone. The son and daughter each get $10k/yr. The money gifted to the grandchildren belongs to the grandchildren, not to the son and daughter. Son and daughter have no right to their childrens' gifts, although if the children are minors, their parents can manage it for them until a certain age (18 in most states). When the kids reach 18, Grandma can explain to each one that the money is for college (or, say, for the eventual down payment on a house) and that if they run out and buy a Ferrarri their annual gifts will cease.

Grandma's will can divide her remaining assets equally between son and daughter at her death (if she wants), but what she gifts out during her lifetime really doesn't fall into the "equal" or "not equal" formula. Suppose Daughter (with more kids) has less money than Son - she'll have more trouble putting her kids through college than Son. Or suppose Daughter has one kid over 18 who'll spend his entire gift on drugs - should that kid be given $10k/year? Suppose one granchild has a disability that will make it impossible for him to earn a living - should that kid (perhaps) have a trust set up for his benefit later in life?

Incidentally, if Grandma lives till 2006 (I think that's the year), she can leave $1 million without estate taxes due. If her money, despite the gifting, grows over that $1 million, she can give additional gifts of any amount she wants to any individual for the purposes of education or healthcare if that money is paid directly to a school or medical facility.

And Grandma should consider insuring herself for nursing home costs. Here on Long Island in NY, nursing homes now cost upwards of $100k/year, and that could make a very big dent very fast in the money her kids are bickering about now.

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[[ Would it be possible to completely split the estate now between brother and sister?]]

Sorry...not sure that I understand this question completely. Since the money is Grandma's, she can do whatever she wants to with it. If she wants to give it all away now (with the promise that brother and sister will take care of her), so be it. Buy my experience has been that most people are just not ready to release THAT much control on the basis of a simple promise...even if the promise is from the children.

[[ And if so, could sister, with more heirs, have more money gifted and thus reduce
the size of the estate to insure less inheritance to Uncle Sam?]]

Sure...but then things would not be "equal" in the eyes of brother and sister...which was the primary problem, right? But certainly, if more "exempt" gifts could be made on sister's side of things, estate taxes would eventually be saved. And there is nothing that says that Grandma can't begin to use up part of her unified credit NOW by making gifts in excess of $10k each.

See my point? If not, let me know and I'll try to be clearer with an example.

TMF Taxes
Roy

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[[ Wait a minute! Where's the inequality or unfairness? Your grandma's gifts of
$10K are to a number of different children and grandchildren, NOT to her son and
daughter alone.]]

You are absolutely correct, Trini...

But most "kids" feel that the money is really theirs...not the grandkids. So in many cases they might browbeat mom (in a nice way) to make things even...regardless of the grandkid issues. I'm sure, at some point in your life, you heard one of your siblings say to one of your parents "You ALWAYS loved Trini more than me".

You would think that people would grow up as they grow older. But many times, when money is involved, they just don't.

[[ The son and daughter each get $10k/yr. The money gifted to the
grandchildren belongs to the grandchildren, not to the son and daughter.]]

Correct again...

[[ Son and
daughter have no right to their childrens' gifts, although if the children are minors,
their parents can manage it for them until a certain age (18 in most states). When
the kids reach 18, Grandma can explain to each one that the money is for college
(or, say, for the eventual down payment on a house) and that if they run out and
buy a Ferrarri their annual gifts will cease.]]

Correct again...

[[ Grandma's will can divide her remaining assets equally between son and daughter
at her death (if she wants), but what she gifts out during her lifetime really doesn't
fall into the "equal" or "not equal" formula.]]

...and again....

[[ Suppose Daughter (with more kids) has
less money than Son - she'll have more trouble putting her kids through college
than Son. Or suppose Daughter has one kid over 18 who'll spend his entire gift on
drugs - should that kid be given $10k/year? Suppose one granchild has a disability
that will make it impossible for him to earn a living - should that kid (perhaps) have
a trust set up for his benefit later in life?]]

Questions that I have to deal with every day, Trini. Very well put.

[[ Incidentally, if Grandma lives till 2006 (I think that's the year), she can leave $1
million without estate taxes due.]]

Year 2006 IS the magic year, Trini. Right again. And the congress is making noises to not only speed up that date, but increase the amount of the inheritance which will escape estate taxes.

[[ If her money, despite the gifting, grows over that
$1 million, she can give additional gifts of any amount she wants to any individual
for the purposes of education or healthcare if that money is paid directly to a
school or medical facility.]]

Again...correct.

[[ And Grandma should consider insuring herself for nursing home costs. Here on
Long Island in NY, nursing homes now cost upwards of $100k/year, and that
could make a very big dent very fast in the money her kids are bickering about
now.]]

Look into it...certainly. But in many cases you'll find that the premiums are prohibitive. So make sure to run the numbers and know the facts in any event.

All very well said, Trini. Glad to see that you are still posting in the folder. It's always a pleasure to read your stuff.

TMF Taxes
Roy
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My grandmother recently settled her mother's estate
and is now worth a little over $1,000,000. Her son
and daughter are each to receive half of her estate.
She is currently 76. Right now my grandmother is
gifting $10,000 to 6 different relatives (3 on each
side) to draw down the size of her estate to avoid
higher taxes later. Is this the best strategy? The
daughter has more heirs and could receive more in
gifting, but the brother feels that his sister should
pay a percentage to him for getting more of her
inheritance early. Any thoughts?


Any thoughts??? I'll approach this as if it was my money. I will also assume that I have all the money I will ever need so gifting is not reducing my life style.

First I would want to help those that need the money the most. If brother had millions and daughter had none then forget brother.

If both have about the same in income and assets the need is measured by future expenses. The more kids the more help needed. I would also consider life style. I would like to help those that tried to help themselves.

Therefore, I would gift to all the grandchildren equaly.

Next (or probably first) I might think about an educational fund. I think it is section 529 in the IRS code. Go to Filelity.com and review college financing options. This will let you give more than 10,000 now but reduce future years gifts. Another option maybe to consult an attorney about a trust to help pay any of the grandkids college costs. The kids would get the money based on need in my opinion. If one got a full paid scholarship then the trust would use the money for the ones that did not.

Once the grandkids were taken care of then split the rest between brother and sister at their mother's death.

I don't know the family history, but based on this post the brother is not at the top of my list.

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Thank you for all your thoughts. I want to clarify, there is no problem between the brother and the sister. One is just less knowledgeable than other concerning gifting, etc. I apologize if I made it seem differently. As for education, all of the grandchildren are through college. Great grandchildren are all under 5 years of age. The nursing home connection may have to be examined. Where do you find insurance for this?
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[[The nursing home connection may have to be examined. Where do you find
insurance for this?]]

First of all, if you have a genera insurance agent that you are happy with, check with him or her for some backround...but DON'T sign anything!!! My experience is that premiums and coverage for these types of policies can very greatly.

If your insurance carrier will not provide you with names of other companies, check with your local AARP branch or chapter. They should have a bunch of literature on it. That should get you started.

TMF Taxes
Roy
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The nursing home connection may have to be examined. Where do you find insurance for this?

"Consumer Reports" has had some very good articles on extended care insurance. Check at your library for the CR index. CR also has a website.

Carol
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Well the best stratigy might have been for the 76-year old to disclaim part of her mother's estate so that it would flow directly to those to whom shw is now struggeling to give it. Probably too late now.
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<< Incidentally, if Grandma lives till 2006 (I think that's the year), she can leave $1 million without estate taxes due. If her money, despite the gifting,
grows over that $1 million, she can give additional gifts of any amount she wants to any individual for the purposes of education or healthcare if that money is paid directly to a school or medical facility. >>

Could someone please show me where I can read up on this? I looked in the Fool school, but didn't see a
reference to this. When I read the above information, I interpret it to mean that on and after 2006, a donor can gift up to one million tax-free to the donee - unlike the current $10,000 (or $20,000 to a married couple) non-taxable gift.

Thanks,

Brian
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Brian: You wrote, "When I read the above information, I interpret it to mean that on and after 2006, a donor can gift up to one million tax-free to the donee - unlike the current $10,000 (or $20,000 to a married couple) non-taxable gift."

I beleive that you may be confusing apples and oranges. The 10k/20k is the annual gift exclusion and is recurring. The 1,000,000 in 2006 (curently 650k, I believe, maybe 675k for '99) is the lifetime exclusion. For example, you could give me 650k today and not pay any gift tax; you would, however, have used up all your current lifetime exemption.

I am sure that the regulars will post more knowledgeable answers, but hope this helps in the meantime.

Regards, JAFO
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I interpret it to mean that on and after 2006, a donor can gift up to one million tax-free to the donee - unlike the current $10,000 (or $20,000 to a married couple) non-taxable gift.

Brian,

This is very simplistic, but it means that you can have a $1 million estate and not have any estate taxes owed after you die, not that you can gift that amount.

Carol
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[[ Could someone please show me where I can read up on this? I looked in the
Fool school, but didn't see a
reference to this. When I read the above information, I interpret it to mean that
on and after 2006, a donor can gift up to one million tax-free to the donee -
unlike the current $10,000 (or $20,000 to a married couple) non-taxable gift.]]

You can read MUCH more about this issue in IRS Publication 950 at the IRS web site.

TMF Taxes
Roy
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