Gift Tax Savings Question

[TinkOhio]

My little sister asked me to help her with some money that she and her husband just came in to. I would like to help her, but I have no experience with coming into inheritance money. Maybe some Dis peeps can lend some advice?

Long story short, her husband's father passed. Her husband's step mother told her that she was sending a check in a way that would avoid her having to pay a gift tax. She sent a check for 26k made payable to my sister and her husband. Is there a way that my sister and brother in law should handle the check so that she loses the least amount to taxes? Should she contact an accountant? What will they wind up with after taxes?

TIA for any help.

 

[peggster]

Gift taxes are owed (potentially) by the one giving the gift, not the recipient. So your sister and her husband are not the ones who would have to deal with any tax issues. If this money is part of an estate, though, I'm not sure if that changes anything.

Disclaimer: I am not a CPA, but I am currently studying for the CPA exam.

 

[Cheshire Figment]

1. Gift tax is a liability to the giver, not the recipient.

2. Any money received by a person as a gift is not subject to any income tax.

3. Any one person can give any other person up to $13,000 per year and not be subject to the gift tax. There is no limit of the number of recipients. In this situation, to be more in compliance with the letter of the law, it should have been a separate check for $13,000 to each of the two people.

4. Only if a person gives a gift of more than $13,000 to a person is the money over the $13,000 subject to the gift tax (actually the "Unified Transfer Tax"). And then there are credits and things start getting complicated.

Mike (CPA Retired)

 

[TinkOhio]

Thanks so much for the quick information!

I'm not sure what to tell my sister. Should she (and her husband) tell her mother-in law that she could run in to problems becasue it's one check, not two?

Thanks again!

 

[msmayor]

Is it really a gift...or is it an inheritance?

Two different things....

 

[clutter]

Is it really a gift...or is it an inheritance?

Two different things....

True. Taxes on an inheritance, if any, are paid by the estate, and taxes on a gift, if any, are paid by the giver.

If your husband is a beneficiary of the estate, there is no reason for limiting a payment to him to avoid gift tax. In this case, it sounds like the step-mother is the sole beneficiary and she is giving him (both of you technically) a gifr from her inheritance. If he is supposed to get a share, it would come to him after taxes and there would not be a limit on the amount. I'd talk to a probate lawyer to make sure the estate is being distributed in accordance with either his wishes or state law.

 

[Cheshire Figment]

Re-reading leads to this.

When the father died, did all of his assets go to his then wife (the stepmother)?

If the answer is no, then the executor (personal representative) should have made distributions according to the terms of the will.

If all the money went to the stepmother, then the money is hers to do with as she pleases. Her giving gifts while she is alive will reduce the value of her estate and lower (or completely eliminate) any taxes on her estate when she dies.

 

[TinkOhio]

The mother-in-law/stepmother inherited everything. It's been over a year and the estate has been settled. She wrote one check to my sister/brother-in-law for 26k. She said that she had checked with her attorney/accountant to make sure that she was avoiding gift tax. It sounds like my sister/brother-in-law are in the clear. Right?

 

[LadyBeBop]

The mother-in-law/stepmother inherited everything. It's been over a year and the estate has been settled. She wrote one check to my sister/brother-in-law for 26k. She said that she had checked with her attorney/accountant to make sure that she was avoiding gift tax. It sounds like my sister/brother-in-law are in the clear. Right?

Yes they are. Gifts are never taxable. Their stepmother is allowed to make a total of $13K a year in gifts to a single person (or $26K to a married couple) without worrying about a gift tax.