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Inheritance – Skipping a Generation
Old 09-15-2014, 02:26 PM   #1
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Inheritance – Skipping a Generation

Are there any legal/tax reasons that prevent someone from skipping a generation for inheritance?

I’ve suggested to my mother-in-law that she skip us in her will and to leave everything to her grandchildren instead. She doesn’t think she could do that for some reason. I’ve suggested she talk to her lawyer to see what they recommend.

My wife is an only child, so everything her mom has will either go to her and/or our kids. I’ve planned for early retirement without any inheritance, so we really don’t need or plan on the money. The estate is primarily a small farm that is paid off and currently being rented for income. I estimate the farm is worth around $1 M. I have no idea the tax impacts based on my suggestion. I just assume that one less round of inheritance tax is better.

I’ve even suggested she divide it up among all three in case skipping her daughter was a physiological issue.
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Old 09-15-2014, 02:32 PM   #2
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You may want to read up on the Generation-skipping transfer tax.
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Old 09-15-2014, 03:15 PM   #3
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Estate planners are worth the dollars you pay them. The one we saw knew all the things we did not know, especially differences between state and fed and how to set up wills and trusts not to lose exemptions available.
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Old 09-15-2014, 03:17 PM   #4
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There is $5 million federal (not state) exemption before you owe estate taxes. So a $1 million estate shouldn't be taxed at all.
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Old 09-15-2014, 03:17 PM   #5
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Estate planners are worth the dollars you pay them. The one we saw knew all the things we did not know, especially differences between state and fed and how to set up wills and trusts not to lose exemptions available.
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Old 09-15-2014, 03:46 PM   #6
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What she said.

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Old 09-16-2014, 07:26 PM   #7
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IANAL, so I won't argue with the people who told you that you should talk to a lawyer.

But, I'll guess that $1 million is well under the deductible for Federal Estate Tax.

State inheritance rates, of course, vary by state. In one state where I settled an estate, both children and grandchildren were exempt. In the other, children and grandchildren both paid 1% of the excess over $xx,xxx.

You may well find that taxes aren't significant enough to influence a decision.
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Old 09-16-2014, 08:35 PM   #8
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How about %4.5 - %15 with zero exemptions? Depends on the state the person lives in when they pass.
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Old 09-16-2014, 08:46 PM   #9
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Thanks for the replies.

I'm seriously considering retiring next year. I think I have enough money saved, but I don't have a good handle on tax impacts. I'm sure there are steps I could/should be taking now to minimize future taxes. I will just lump this issue in with our questions.

It looks like this could be a none tax issue, so the inheritance could just be another safety factor in our retirement decision.
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Old 09-16-2014, 09:25 PM   #10
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A way to postpone the decision. Be sure your mothers will lists the grandchildren as secondary beneficiaries with you as the primary. Then when the time comes you can disclaim the inheritance and it will go to the kids Here is a link to an article with some details: How to Disclaim an Inheritance. This has to be done in the 9 months after the death. But it postpones the decision until then, and ensures that should circumstances change you can change the way the inheritance is handled.
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Old 09-17-2014, 02:06 AM   #11
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Other things to consider are the maturity of the grand children. Also if you are going to farm the land or sell it. If farming you might want a life tenancy so you can live there the rest of your life for a dollar a year and property taxes then have it go to the next generation. I knew a farm family who did that and when the son died his wife had been living on the farm over 50 years but had no rights to stay. They had a fire so she had a mobile home and her son made her move it to the farm he lived on with his wife and kids. Since he didn't get the farm right away his uncle loaned him the down payment on a farm then a company paid him to farm so he added the grandparents farm as a third farm. He didn't want his mom living alone on the old farm in her old age and she didn't have a choice.
If your kids are minors they wouldn't get anything right away and if young adults might be a little foolish still.
Lawsuits would go for whoever was legal owner so if the kids ran the farm and got suit you could lose your money if you were the owner.
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Old 09-17-2014, 09:04 AM   #12
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There is $5 million federal (not state) exemption before you owe estate taxes. So a $1 million estate shouldn't be taxed at all.
I believe that's per/person, so if you are married, that's 10 million in total.
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Old 09-17-2014, 10:42 AM   #13
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There is $5 million federal (not state) exemption before you owe estate taxes. So a $1 million estate shouldn't be taxed at all.
Right, $1M is now pretty far from the estate tax range, so the OP should have no concerns regarding any estate taxes or complex plans - nothing to avoid, estate tax wise.

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Estate planners are worth the dollars you pay them. ...
I think that needs to be qualified with 'a good estate planner....'. Unfortunately, there are a lot of annuity/insurance salespeople posing as 'estate planners', and/or 'real' estate planners that seem to have cozy relationships with annuity/insurance salespeople .

Just like we say about an FA - you need to have some basic knowledge to evaluate whether they are any good. If your needs are complex (or maybe even just above 'basic'), an Estate Planner probably can bring a lot to the party, but you do have to find a 'good' one. How do you do that?

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Old 09-17-2014, 11:34 AM   #14
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By estate planner, I of course meant an actual attorney. Is there really a question about what constitutes actual professional help? Good lord, I worry.
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