Gift Now or Inheritance Later

[Tree-dweller]

Question: how does the IRS know whether/if you have given x number of dollars to your child? Is this Form 709 based on the honor system? My estate isn't likely to approach the $5mm size, so it's not an issue for us, but I'm just not clear how the govt would know if you slid your kids more than 14/28k in a year.

 

[Blue Collar Guy]

Question: how does the IRS know whether/if you have given x number of dollars to your child? Is this Form 709 based on the honor system? My estate isn't likely to approach the $5mm size, so it's not an issue for us, but I'm just not clear how the govt would know if you slid your kids more than 14/28k in a year.

All you need is a bank employee to drop a suspicious activity report on you.https://en.wikipedia.org/wiki/Suspicious_activity_report

 

[Tree-dweller]

I guess anything is possible, but say a monthly check for 2 grand written from a father to a son seems unlikely to trigger a SAR, which your link suggests is used to target money laundering and other more nefarious capers. Guess it's best to stick with Grandma's cash-stuffed envelope approach ;->

All you need is a bank employee to drop a suspicious activity report on you.https://en.wikipedia.org/wiki/Suspicious_activity_report

 

[Blue Collar Guy]

I guess anything is possible, but say a monthly check for 2 grand written from a father to a son seems unlikely to trigger a SAR, which your link suggests is used to target money laundering and other more nefarious capers. Guess it's best to stick with Grandma's cash-stuffed envelope approach ;->

Its no big deal to file the form. No one has any tax liabilities. Your tax person may charge you extra to file it. Im not familiar with your personal situation, but if you have a wife, then you guys can give him 28k a year with no issues and no paperwork. For that matter, if there is a grandma in the mix, you can give another 14k to her and she can re-gift it to your son, now we are at 42k, still no paperwork.

 

[Alan]

Question: how does the IRS know whether/if you have given x number of dollars to your child? Is this Form 709 based on the honor system? My estate isn't likely to approach the $5mm size, so it's not an issue for us, but I'm just not clear how the govt would know if you slid your kids more than 14/28k in a year.

I wonder about this as well. Turbotax doesn't appear to have the form as I think it is a separate filing. The form also allows you to report gifts from previous years. Since it doesn't affect me in the long run and is easy to do myself I will file the form "just in case".

 

[audreyh1]

Question: how does the IRS know whether/if you have given x number of dollars to your child? Is this Form 709 based on the honor system? My estate isn't likely to approach the $5mm size, so it's not an issue for us, but I'm just not clear how the govt would know if you slid your kids more than 14/28k in a year.

I don't see how they would very easily at all. It certainly wouldn't show up in a normal audit, but would require analysis of all your payments across all financial institutions in a given year.

 

[Amethyst]

"A stranger got half of it." You meant the second wife, right? Not "a stranger." A relative by marriage. Sounds like the others chose to ignore and disdain this new relative. Serves them right.

The widow mother is still alive as well as my neighbor. They inherit as a 50 % partner the new wife who no one knows. The wind up was they sold off the property for big bucks and the business folded. The widow mother long ago (8 years) gave her kids their inheritance early, a stranger got half of it.

 

[Koolau]

I just remembered this story. I think its relevant to the topic at hand so i will relate it. When i was a teenager one of my neighbors owned a business. It was actually owned by his widowed mother. This widow had 2 children who were in their 50's. The boy (my neighbor) ran one part. My neighbor had a sister, her husband ran the other part of the business. From what i remember they gave the mother(the real owner) a weekly salary and she lived very well. The widow never stepped foot into the business as it was started by her late husband. The wife of my neighbor disliked her mother in law immensely. I believe the reason was because the mom still controlled the business on paper. She convinced the mother after years of badgering to give the business to the 2 children. I met the sister and brother in law many times., nice people, no children. My neighbor had 4 children. About 5 years after she gifts the business to them, the sister dies. The husband gets remarried a few years later and suffers a massive heart attack and dies. The widow mother is still alive as well as my neighbor. They inherit as a 50 % partner the new wife who no one knows. The wind up was they sold off the property for big bucks and the business folded. The widow mother long ago (8 years) gave her kids their inheritance early, a stranger got half of it.

This sort of scenario is the reason our small business (Sub S) had a resolution for a buy-sell agreement. Essentially the business had insurance policies on each of the share holders. When one would die, the proceeds would allow the Corp. to buy the shares of the one who died. The relatives of the deceased got bought out with no chance to become a share holder. Guess what. The youngest share holder did die and the Corp. bought the shares back. The alternative could have been a nightmare (without going into details.) The terms of a buy-sell can be tricky, so the shareholders really need to think about how it might play out. YMMV

 

[Koolau]

"A stranger got half of it." You meant the second wife, right? Not "a stranger." A relative by marriage. Sounds like the others chose to ignore and disdain this new relative. Serves them right.

I would suggest we don't know enough to know if anyone was "served rightly." Heh, heh, I don't know any more about BCG's scenario than you do, but trust me, we KNEW the "other person" in our situation and let's just say it worked out better for all that we had anticipated this turn of events - even, as it turns out, for the "outsider." We put the buy-sell into place long before the "stranger" or "outsider" came into the picture, so it was not aimed at an individual - only at a potential situation. We thanked God that a very tough situation (loss of a family member and business associate) was not made worse by inclusion of a disruptive force.

Too long a story, but suffice to say, every life, every story, every relationship, every business is complicated. Simple assumptions about the way relationships "should be" don't always make for good policy. Naturally, you are free to disagree as YMMV.

 

[bclover]

So me and my late husband have unfortunately witnessed horrible, horrible family drama over inheritance. Three instances and one of them ended with one sister SHOOTING her brother over perceived inequality over the inheritance. That seriously turned us off of large sum inheritances.
I plan on continuing with what we decided. If I kick the bucket before grandkids the plan was.

Our kids each got a free education, my youngest will go to law school (if he decides) pretty much loan free, each will inherit a house and a small modest cash amount. throughout their lives they have traveled much of Europe and been to Disney more times than the law should allow. If I am blessed with grandkids they will also be able to go to college without loans.

I will continue to help them throughout their lives but any large estate will go to the charities late hubby and I supported.

My family is the Maury Povich episode "I slept with my brothers wife because he got more money than me when dad died".

 

[Penny6]

I've received 2 gifts in my late 20s for about 20,000 each. That gift was a fricken godsend and in my opinion that extra psychologically push to build my own wealth.

It's an amazing thing to be able to receive that gift, even more incredible to give it IMHO. I want to be able to do that for my kids when I am still alive.

One of the gifts was when we wed, my in-laws covered up to a certain point of the wedding. We managed to elope for $10,000 wedding on the beach with our closest friends and family. We had money leftover that we used to pay down our own debt and a down-payment on a newer car.

The second gift allowed me to get a new roof for our home and put some into roth IRA. I feel like just that $30,000 although we never really saw $13,000 as we put it into Roth, helped us so much that we are in much better positions financially than most of my peers.

So if you have the opportunity to gift to kids who won't squander it could be the best thing that happened to them. Plus you will get a lot of steak dinners in return.

Not having the kids squander is a key factor in my eyes. I personally will gift, but probably in some sort of match scenario. Match if roths are fully funded, match a contribution for a house down payment. Definately plan on continuing our annual family vacation. Hopeful to take grandkids with us on separate trips to give the parents vacation time alone. When my husband and I took a trip to Paris with our 2 littles we were taking a Sienne River tour and we sat next an older couple and they had their maybe 4yo granddaughter with them. How amazing to give your grandkids a passion for travel as well as the time and memories. We also look forward to our kidless vacation time where we reconnect and decompress as a couple. I think giving a couple nearly 60k cash a year with no direction could easily be detrimental. If this couple is a hardworking responsible goal oriented couple maybe not. We live in a consumeristic society so you have to be willing to sit with the idea your legacy may be squandered on some thongs you may deem unnecessary.

 

[Blue Collar Guy]

"A stranger got half of it." You meant the second wife, right? Not "a stranger." A relative by marriage. Sounds like the others chose to ignore and disdain this new relative. Serves them right.

Yes the second wife. She was a stranger to the mother in law. She never met her , they were married I believe 3 years when the son in law died. And im quoting my neighbors who referenced the 2nd wife "as a stranger". She was also referred to as other things, but i left those words out. Stranger was the most complimentary.

 

[Amethyst]

So they felt free to call her bad names, even though they didn't know her. Sound like darling folks.

Yes the second wife. She was a stranger to the mother in law. She never met her , they were married I believe 3 years when the son in law died. And im quoting my neighbors who referenced the 2nd wife "as a stranger". She was also referred to as other things, but i left those words out. Stranger was the most complimentary.

 

[RunningBum]

This sort of scenario is the reason our small business (Sub S) had a resolution for a buy-sell agreement. Essentially the business had insurance policies on each of the share holders. When one would die, the proceeds would allow the Corp. to buy the shares of the one who died. The relatives of the deceased got bought out with no chance to become a share holder. Guess what. The youngest share holder did die and the Corp. bought the shares back. The alternative could have been a nightmare (without going into details.) The terms of a buy-sell can be tricky, so the shareholders really need to think about how it might play out. YMMV

Yes, that's the way to handle things like this. Gifting vs willing is irrelevant, as the same thing would've happened had the mother died before gifting the business.

 

[kaudrey]

Back on subject....my sister and I are in our 40s. My parents have given us some money every year at Christmas (below the $14K), for the last 5 years or so. Doesn't change our lives, but they know we appreciate it and will put it toward our next vacation or big purchase (this year it's going toward my bathroom remodel).


I usually put at least half of it in my brokerage account.


I'd vote for annual gifts rather than monthly. Then it seems more special and the kids can make a bigger deal out of thanking you, etc...

 

[Blue Collar Guy]

So they felt free to call her bad names, even though they didn't know her. Sound like darling folks.

My moral of the story was they should have never pressured the mother to give away the business before she really wanted to. In my opinion if she wouldn't have pressured her mother in law to give "the kids" the business as an early inheritance , she would have been probably gotten the lions share, instead of 50 %.

 

[OddGuy]

My moral of the story was they should have never pressured the mother to give away the business before she really wanted to. In my opinion if she wouldn't have pressured her mother in law to give "the kids" the business as an early inheritance , she would have been probably gotten the lions share, instead of 50 %.

I had to read your story carefully to follow the dynamics, but in doing so I can see this is no standard 2nd wife scenario, but a true stranger situation:

1.) Brother and daughter-in-law own 50%, Sister and son-in-law own other 50%.
2.) Sister dies, now son-in-law owns 50%.
3.) Son-in-law remarries.
4.) Son-in-law dies.
5.) Son-in-law's 2nd wife (who no one has met) now owns 50% of the business.

I can see how that would be uncomfortable.

 

[ivinsfan]

I had to read your story carefully to follow the dynamics, but in doing so I can see this is no standard 2nd wife scenario, but a true stranger situation:

1.) Brother and daughter-in-law own 50%, Sister and son-in-law own other 50%.
2.) Sister dies, now son-in-law owns 50%.
3.) Son-in-law remarries.
4.) Son-in-law dies.
5.) Son-in-law's 2nd wife (who no one has met) now owns 50% of the business.

I can see how that would be uncomfortable.

So this scenario would take more then a few years to play out....that business should have had something in writing to address number 2 and number 5 would never have happened. You can't close the barn door after the horse has left the barn.

 

[GravitySucks]

I'd like to gift now, but want to get closer to my SS at 70 before I run down my stash.
I guess in six more years when I'm over the ten year mark if the portfolio is still on track I'll start gifting cash to my girls.
Agree with the poster above a large one time gift would probably be put to better use than a lot of little ones that would probably be used to finance too much car.
I am thinking of paying for a family vacation this year as I've had a tough year and need time with my loved ones, but that won't cost more than a few thousand $$.

 

[SJ1_]

I suspect that taking them on vacations would also skip the gift designation and would further enhance the family fun memory bank.

Example: on a European river cruise I saw a 70 yr old taking her granddaughter along for a nice 2 week vacation, a nice trip for an 17-19 yr old.

love the vacation idea. we have take the family on 3 cruises since our retirement
and all we great family vacations with amazing memories.

 

[RetNE]

We have begun to share our savings with our early thirties children and their spouses now, when they are faced with their first mortgages and expenses for their first children. We are also funding 529 plans for each grandchild.

A friend advised us one of the best uses for extra savings is to create shared family memories. At first we wondered whether our children would really want to go on vacations with us, but when we offered to rent an ocean front condo for spring vacations they readily agreed it was a great idea.