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)
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.
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.
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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.
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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.
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