Inheritance options

[Brian]

What are you doing to minimize inheritance taxes on asset transfers due to inheritance? Is anyone proposing to skip a generation for inherence tax savings reasons?

My parents are both in their early 80’s. My mom has had some recent significant health issues which have them thinking about inheritance, rest homes, funerals, and wills. Their assets are somewhat divided between the two of them. One owns the house. The other owns a rental property. I believe they each have a car under their name, etc.

They brought up the idea to leave whatever they have under their names to my sisters and me vs. each other to save on inheritance taxes. The expectation if we; thier children, inherited something the other parent needs like the house; we would let them continue to use it. If they can afford to pay upkeep/property taxes, they would. If not, we would.

They don’t have a lot of net worth and neither I nor my sisters necessarily need or expect an inheritance. In fact, we are currently helping to subsidize their living expenses by a little each month. We are more than happy to do this since we love them and they were always there to help us out in the early years when we needed it.

I do plan to eventually seek professional legal advice, but thought I would start my research here in the forum to see what others are doing before spending too much money. I’m assuming it’s an acceptable approach and they just need a new will to state their intentions.

 

[FIREd]

If they don't have a lot of net worth, their estate tax liability is probably $0. For 2013, the estate tax exemption is $1M.

 

[kaudrey]

I think it would be fine to do it that way if they want. I assume you mean because if they waited until the second parent passes, the value would be over $1M?

I know my aunt has set up a trust so that her house first goes to her partner (they never married, but have been together about 25 years), and then to my sister and I when he dies (she doesn't have any kids). Not that we would ever kick him out either....

 

[Brian]

Looks like this is a non issue. I have a hard time believing their combined assets are over $1M. Thanks for the help

 

[Bestwifeever]

I think you should help them get a simple will in place asap since their wishes seem to be outside what would happen to their estate if one of them dies before a will is in place.

 

[Alan]

I think you should help them get a simple will in place asap since their wishes seem to be outside what would happen to their estate if one of them dies before a will is in place.

+1

The will could also stipulate that the surviving spouse would have the use of the house while they lived.

It does sound like a non-issue though if the total value of the estate is under $1M.

 

[Animorph]

If they can name beneficiaries for their financial accounts that can avoid the will/probate process, which should be simpler and clearer. Depending on how bad the probate process is in their state, a revokable trust may still be convenient even though they don't need it to retain their individual estate tax exemptions.

 

[LOL!]

Bypass trust or A/B trust is very common. See Bypass trust - Wikipedia, the free encyclopedia

 

[Nords]

Bypass trust or A/B trust is very common. See Bypass trust - Wikipedia, the free encyclopedia

That's what we're using.

 

[meierlde]

It should be noted that there is something called the generation skipping transfer tax that applies to deaths after 1986 if you try to transfer to grandchildren while the children are still alive you get to pay 2 sets of inheritance taxes since the government figures that they would if the normal course were followed get 2 bites at the apple.
Now this only applies above the estate tax limit (Obama wants it to be 3.5 million as it was in 2009 so the real question is how much higher is it going to be)

 

[Brian]

Thanks for the comments.

I will suggest getting their wishes in writing. The discussions do have me thinking they may want to consider skipping us; their children, and leave it to their grandchildren.

 

[Shanky]

If it is not truly needed by you or your siblings, donate what is left to the charity of your choice. It would be a great thing to do. Less disruptive, and helps someone who has a true need. I am not a believer in inheritances.

 

[growing_older]

It should be noted that there is something called the generation skipping transfer tax that applies to deaths after 1986 if you try to transfer to grandchildren while the children are still alive you get to pay 2 sets of inheritance taxes since the government figures that they would if the normal course were followed get 2 bites at the apple.

The amount potentially subject to this goes up and down with legislation, but a possible scenario is Grandparents are under the limit, Parents are under the limit, but if Parents inherit then transfer to children the combined total is over the limit. In that case skipping a generation can save quite a bit of tax.