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Is it an inheritance or a gift? (and taxed like a gift)

Santa Rosa, CA |

Estate/trust gives all money (approx $80,000) to oldest child. He divides it among the 3 children. Is the money that is given to the other children considered inheritance (from the parent) or a gift (with gift taxes to be paid)

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Attorney answers 5

Posted

An inheritance is what passes via a Will, Trust or Intestate proceeding by the trustee, or the person's estate. A gift is what is passed outside of these while the giver is alive. Whatever was received by the children of the decedant was an inheritance.

Posted

The eldest child could disclaim within 6 months if that would achieve the result wanted and it would be treated as flowing from the parents. If the child accepts the $80,000 and without the threat of litigation or otherwise simply shares with his siblings, the eldest child would have made a gift. With that said, the annual exclusion is $14,000. If the eldest child is married the gift can be treated as coming from the child and his spouse which increases the exclusion to $28,000 covering the $26,666 given to the other two. If not, and the siblings are married, the gift could go the couple with the same result.

Anyway, the issue is minor. If you have questions, consult a local trust attorney.

The general advice above does not constitute an attorney-client relationship: you haven't hired me or my firm or given me confidential information by posting on this public forum, and my answer on this public forum does not constitute attorney-client advice. IRS Circular 230 Disclosure: In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. While I am licensed to practice in New York and California, I do not actively practice in New York. Regardless, nothing said should be deemed an opinion of law of any state. All readers need to do their own research or pay an attorney for a legal opinion if one is necessary or desired.

Christine James

Christine James

Posted

I agree with Mr. Shultz however I believe the gift exclusion is $13,000 per person or $26,000 per married couple.

Charles Adam Shultz

Charles Adam Shultz

Posted

It went up again on January 1, 2013. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What's-New---Estate-and-Gift-Tax

Christine James

Christine James

Posted

Just checking to see if you read the comments :).

Charles Adam Shultz

Charles Adam Shultz

Posted

I do and if I mention something incorrect, absolutely correct me. I have not problem admitting Im wrong and use this forum myself for education as there are many great contributions including yours.

Mary Lynn Symons

Mary Lynn Symons

Posted

The period for disclaiming is nine months from the date of death (not 6 months) - but the disclaimant must not have accepted the interest. As you indirectly noted, the disclaimant cannot direct the distribution so the original poster should consult twith an attorney to see if a disclaimer would work to achieve the desired results. That being said, i also agree with the comments about gifting (with a $14,000 annual exlusion).

Charles Adam Shultz

Charles Adam Shultz

Posted

Thank you. I was confusing alternate valuation date.

Posted

Gift.

Please note that I am answering this question as a service through Avvo but not as your attorney and no attorney-client relationship is established by this posting. An attorney-client relationship can only be established through signing a Fee Agreement and paying the necessary advanced fees.

Posted

I agree with my colleagues. As long as the eldest child in your scenario is alive at the time of the transfer, it would be treated as a gift. If it is treated as a gift, a gift tax return should be filed. No tax would be owed unless the grantor has exhausted his $5.25 million exemption.

James Frederick

***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ***************************************** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state. I hope you our answer helpful!

Posted

Will be an inheritance if oldest child files a valid Disclaimer with the Probate Court as Attorney Shultz noted. However, the question is who is entitled to get the disclaimed bequest ($80k x 66.7%) because the party who disclaims is deemed to have predeceased the trust grantor.....so what does the trust say about where money goes if oldest son were to die...is possible that the money would NOT in fact be going to the 2 sibs equally as oldest child wants. Check the trust to be sure that an unintended result cannot happen from using the disclaimer technique.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.

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