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Gift Tax regulations question
Old 11-17-2014, 04:58 PM   #1
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Gift Tax regulations question

I am planning to convey an inheritance I received ,to 2 generations below me, as I don't need the money , and those younger ones were not in the estate ( they weren't even born when the estate plan was drawn up by my Fathers estate planner).

Am I correct on gift tax, that more than $10K per year per person can be given tax free, if accounted for, however , it will reduce the estate tax exemption amount when I die ?
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Old 11-17-2014, 05:03 PM   #2
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I think the exclusion is now $14K per person per year. So $28K for a couple.

Conveying an inheritance is new to me, though.
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Old 11-17-2014, 05:10 PM   #3
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I think the exclusion is now $14K per person per year. So $28K for a couple.

Conveying an inheritance is new to me, though.
Sometimes hers are excluded because the person didn't want someone to get any money. And sometimes someone who did get money wants to share , even though it was not the wish of the bequestor.

In this case, I'm sure Dad would have wanted the younger generations to be included, but he never updated his estate plan.
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Old 11-17-2014, 05:12 PM   #4
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I didn't think gifts within the annual limit reduced the estate tax exemption, but with all the revisions in recent years I'd have to study it. Note also the Generation Skipping Tax.
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Old 11-17-2014, 05:22 PM   #5
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I didn't think gifts within the annual limit reduced the estate tax exemption, but with all the revisions in recent years I'd have to study it. Note also the Generation Skipping Tax.
This would be well over the annual limit.

Another idea is to make a 1st td balloon payment loan to my niece on her house at a low interest rate, as it would be enough to pay off her existing 1st td, and just never call in the loan.
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Old 11-17-2014, 05:25 PM   #6
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Originally Posted by Lakewood90712 View Post
I am planning to convey an inheritance I received ,to 2 generations below me, as I don't need the money , and those younger ones were not in the estate ( they weren't even born when the estate plan was drawn up by my Fathers estate planner).

Am I correct on gift tax, that more than $10K per year per person can be given tax free, if accounted for, however , it will reduce the estate tax exemption amount when I die ?
That's essentially correct other than amount is 14K in 2015. Remember that both you and your spouse can give the 14K/year and if the grandkids are married you can give an additional 28K/year to their spouse.

If you want to give more than that than it reduces your life time gift tax exclusion, which is 2015 in 5.43 mil/person. There are bunch of tricks you can use if to effectively increase those limits, but unless you have more than $10 million I'm not sure I'd bother.
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Old 11-17-2014, 06:26 PM   #7
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Another idea is to make a 1st td balloon payment loan to my niece on her house at a low interest rate, as it would be enough to pay off her existing 1st td, and just never call in the loan.
Be careful here.

"It is important that clients understand that charging an adequate interest rate is only one of the many factors that determine whether an intra-family loan will be respected as a bona fide debt. The Internal Revenue Service (“IRS”) may re-characterize an intra-family loan as a disguised gift subject to gift taxation if the form and/or substance of such loan is not respected."

gift or debt
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Old 11-17-2014, 07:12 PM   #8
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Look into gifts that don't count against your gift limits. They include tuition paid directly to the school, not the person and medical bills/insurance again, paid directly not to the person. So you can gift $14k to the person, pay their $50k tuition and $20k medical bills/insurance as long as you pay the companies directly.
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Old 11-17-2014, 08:35 PM   #9
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If there are people you can trust, you can give each of them the $14K per year and they can turn around and give same to these people you want the money to go to with no tax consequences.
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Old 11-18-2014, 07:40 AM   #10
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All good ideas on this post. Regarding the home loan......you could charge acceptable interest, then gift 14k or 28k, whichever isn't charged against your lifetime exemtion each year until the full amount is forgiven. And, if your and your spouses estate is less than 10m you don't really have to worry about the taxes. Be careful with the generation skipping rules and num your plan past a good cpa or tax attorney. Again, you had many good ideas already....but validate your plan.....it's expensive if you misuse the tax code by accident.
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Old 11-19-2014, 10:17 AM   #11
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If there are people you can trust, you can give each of them the $14K per year and they can turn around and give same to these people you want the money to go to with no tax consequences.
This is tax evasion and it won't fly if the IRS becomes aware of it. It's called the Step Transaction Doctrine, i.e., the IRS will ignore the intermediate steps and treat it as a gift direct from the donor to the ultimate donee.
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