Hi, I'm.....

[FL_Sailor]

Long time lurker, first time posting.......been reading/learning on this site for months now. I'm 45, divorced, good job with large company,good salary and benfits. Definately a LBYM kind of guy, saving/investing a large percent of my take home for ER. Up until recently, I had planned ER in 2017 at 55 when all my planets seem to line up, bills paid off, pension, and enough money saved (according to firecalc and all other retirement calculator I can find).

Here is where I need some help...I recently found out that I will soon (when an elderly, sick relative dies) recieve a large inheritance. Somewhere north of $500,000. When that happens, that's it, I'm done- ER.

This money is willed to go to my father, who is independently wealthy and already retired. He says he does not need the money and is going to give it to me.

My question is this- If this were to happen now, I can see where he can get the money without paying estate taxes on it, but how can he then give it to me while he is still alive? Is he mistaken that he can just pass it on to me without being taxed? Would the will need to be changed to reflect me as the beneficiary instead of him?

Any and all comments/thoughts appreciated.

 

[USK Coastie]

Currently each individual is allowed to gift up to $1,000,000 in a lifetime without paying gift taxes. They get an exemption of $1,000,000. It does however count towards the total estate when that person dies. In other words at present, the estate tax exemption is something like $2,000,000 for an individual. If that individual gives you $1,000,000 as a gift and has a remaining estate of $1,500,000. The estate is taxed on any amount above $1,000,000 of the $1,500,000 estate.
This is all subject to change when the present tax cuts from 2002 expire or sunset. Then again now that the Dems are back in charge I'd say all bets are off. I'm sure the'll want to "tweak" the tax code.

Anyone feel free to jump in here if I don't have this down correctly.

 

[Nords]

Welcome to the board, Sailor.

When that happens, that's it, I'm done- ER.
This money is willed to go to my father, who is independently wealthy and already retired. He says he does not need the money and is going to give it to me.
My question is this- If this were to happen now, I can see where he can get the money without paying estate taxes on it, but how can he then give it to me while he is still alive? Is he mistaken that he can just pass it on to me without being taxed? Would the will need to be changed to reflect me as the beneficiary instead of him?

I'm sorry that this is what's accelerating your ER, but congratulations on getting there ahead of schedule!

Your father has a few options: disclaimers, gifts, and busting the gift tax exclusion.

If the will is written to include a disclaimer, it means that your father could elect to refuse the will's bequest. At that point the will's disclaimer will direct the money to someone else, presumably you. Of course that depends on your father's confidence that you're next in line instead of the Hawaii Humane Society. This is the method by which my brother & I inherited a small portfolio from our grandfather-- after our father disclaimed it.

A second option would be gifting. Your father could gift you up to $12K/year, raised by an inflation boost in $1000 increments, tax free. Of course for a $500K bequest this might take a long time to pass on.

A third option would be a lump-sum gift from him to you, which would wipe out a large chunk of his estate-tax exemption. There'd be IRS paperwork involved but the gift would be free of tax.

If this inheritance includes an IRA then be very careful with how your title the IRA. It means the difference between your being able to spread the withdrawals out over your life expectancy or having to withdraw the entire amount within five years. The nitty gritty details are in Ed Slott's first book.

 

[brewer12345]

Welcome, sailor. I think this is a question that you really need to discuss with your dad and a competent estate attorney.

I would also suggest that you revisit your plans for ER and make sure you have the other aspects of your plan up to date.

 

[FinanceDude]

See an estate planning attorney ASAP. If the person who is sick is still of "right mind", they may be able to set up trusts and things so the money flows to the right party at death.

Good luck.................

 

[Martha]

Just for the purpose of emphasis if nothing else, I join in the recommendation for you and your father to consult an estate planner. As posters have mentioned, there may be a variety of ways to accomplish what you want. Do this ASAP.

 

[lazygood4nothinbum]

or, if your relative is coherent and your family is open about such matters, your dad could talk to that person and have your name replaced for his.

ps, if you ever require crew i happen to have nothing on my schedule.

 

[Helen]

Wow, it would really be tough to have this converation with a sick, elderly relative. I don't know if I would go there.

Even though it might make all the sense in the world to do financially, emotionally it could be mmmmm, I don't know which word to use.

 

[Martha]

Wow, it would really be tough to have this converation with a sick, elderly relative. I don't know if I would go there.

Even though it might make all the sense in the world to do financially, emotionally it could be mmmmm, I don't know which word to use.

Unseemly?