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Estate Tax Question
Old 02-23-2011, 01:47 PM   #1
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Estate Tax Question

My wife and I are taking care of my FIL's estate. He has dementia and cannot make any decisions for himself. His estate isn't large, basically his home. He will see about $50,000 from the sale. He has a pension, medical and long term care insurance that can easily cover his living and medical needs.

My DW is the sole heir. My question is about estate taxes. When he dies any money he has will be subject to state and federal estate taxes. While he is alive, he can "gift" us money with no tax implications to either himself or us. Do I have that right?

Since my wife has POA, what if we had him gift us most of the proceeds of the sale of his house and we invest it until the time of his death. If he needs it we can use those funds. Upon his death, we then don't need to worry about estate taxes and such.

Is that legal? Would the IRS frown on that? I know some people gift money to relatives to avoid taxes, but since my FIL is not capable of explicitly gifting us money, would that be a problem. He has said he wants my DW to get all of his possessions and money and has a will to that effect. We assume, pretty sure actually, that he would not want to pay a big part of that to the government and fer my DW to get more of what he worked for.

Thanks!
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Old 02-23-2011, 02:07 PM   #2
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There is no estate tax on $50k. Set up a joint account with right of survivorship between he and your wife so that she has access to the funds. She probably needs that anyway, in order to deal with his current finances.
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Old 02-23-2011, 04:34 PM   #3
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Well, that makes that simple. We were reluctant to have a joint account since he could still spend money, but his condition is such that he cannot anymore. That may be the solution.
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Old 02-23-2011, 04:57 PM   #4
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There is a limit to how much he can give you without triggering the federal gift tax. I think it's something in the area of $21K to each of you per year.

States, as you mentioned, have their own estate tax, which sometimes has no minimum amount, unlike the federal estate tax, so you should look into that.
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Old 02-23-2011, 05:02 PM   #5
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There is no estate tax on $50k. Set up a joint account with right of survivorship between he and your wife so that she has access to the funds. She probably needs that anyway, in order to deal with his current finances.
I think this is correct. We did this with an elderly aunt - funds basically passed to us via joint account. If we were less honest, her rightful heirs could have been cheated of their due.
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Old 02-23-2011, 05:04 PM   #6
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+1 for braumeisters response. As he said...check with the state to see what estate taxes may be owed to them. There should not be any federal estate taxes from the details you have provided above.

You will have a final "income tax" to file. I'd look up his last one to determine what, if any taxes, he had to pay on his pension income. Of course the final one depends on how many months into the year he survives....
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Old 02-23-2011, 05:52 PM   #7
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No federal estate tax on a $50,000 estate. Gifting not an issue for federal estate taxes because you would use their unified credit. No state has an estate tax that would touch a $50,000 estate. I believe only something like 14 states have an estate tax and the lowest credit is in Ohio and even that is over $300,000. Most have a credit of a million or more. I believe these states have a gift tax and I don't know what kind of credit they offer: Delaware, Louisiana, New York, North Carolina, South Carolina, Tennessee and Wisconsin.

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Old 02-23-2011, 06:02 PM   #8
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I believe the current limit for annual gifts is $13K. My family does this. As mentioned, you can give more but then this "unified" exclusion kicks in. It is simpler just to stick to the $13K if appropriate.

However, the other comments about the size of the estate means no estate tax is involved I think may be most appropriate for your situation. It sounds as if estate tax is a non-issue here.
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Old 03-01-2011, 06:03 PM   #9
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Thanks! We already owe the IRS a bunch in back taxes, or my FIL does. The $50,000 is the assumed amount left over after we settle with them, pay off the mortgage, etc.

We know don't expect him to live long enough to sell his home. We will likely deal with it in probate. DW and I and her cousin have all sworn to simplify and get our affairs in order and keep them that way so our kids don't have to deal with a mess like this.
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Old 03-02-2011, 10:53 AM   #10
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DW and I and her cousin have all sworn to simplify and get our affairs in order and keep them that way so our kids don't have to deal with a mess like this.
I hear ya, but my grandfather sandbagged my father with this sort of situation back in the 1980s and my father swore he wasn't going to do it to his kids.

Less than 25 years later I'm getting on a plane to go find out what's really happening. I already know Dad hasn't been keeping up on the medical front. I suspect taxes and finances were abandoned at least a year ago and perhaps even longer.

I'm not criticizing anyone's plans or their optimism. I just wish there was a better way to make sure that when we start down dementia's slippery slope that there was some sort of mechanism in place to keep the minimum cyclic routine going on the finances, medical, and legal sides.

Or rather I should say "That's what my daughter wishes"...
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Old 03-02-2011, 11:24 AM   #11
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I believe these states have a gift tax and I don't know what kind of credit they offer: Delaware, Louisiana, New York, North Carolina, South Carolina, Tennessee and Wisconsin.
The Louisiana gift tax was apparently repealed, effective July 2008:

Gift Tax : Individual : Louisiana Department of Revenue
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Old 03-02-2011, 11:22 PM   #12
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I hear ya, but my grandfather sandbagged my father with this sort of situation back in the 1980s and my father swore he wasn't going to do it to his kids.

Less than 25 years later I'm getting on a plane to go find out what's really happening. I already know Dad hasn't been keeping up on the medical front. I suspect taxes and finances were abandoned at least a year ago and perhaps even longer.

I'm not criticizing anyone's plans or their optimism. I just wish there was a better way to make sure that when we start down dementia's slippery slope that there was some sort of mechanism in place to keep the minimum cyclic routine going on the finances, medical, and legal sides.

Or rather I should say "That's what my daughter wishes"...
I think just simplifying and downsizing would do the trick. It can't be too bad if your possessions are kept to a minimum, the stuff you really care about, and your bills the same. You can't tie up every loose end, but if you adopt a simple lifestyle, how bad could it get?
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