If you make gifts of more than $14k per person in any one year, you would need to file a gift tax return but there would be no gift tax due since the gift and estate tax exclusion has increased to $5,250,000 (5 million indexed for inflation)
It depends on how the donor wants to proceed. He can give all currently since not taxable estate rather than spreading over taxable years since he is in hospice care currently.
The gift tax exclusion for 2013 is $14k. In addition to the options you list above, amounts above the $14k can be given tax free for things like education.
As to a tax audit, your bro-in-law would be reporting the receipt correctly, so I don't think the risk of an audit is high. However, recipients would owe more tax, if given the entire $50k at once, instead of spreading it out over a few years ($50k/$14k, so into the fourth year). given your father-in-laws age and health, that may not be the best option.
Your father-in-law could leave the money in three separate bank accounts, each with a different beneficiary designation, or could put it all in one account, with all three beneficiaries listed.
Please consult a local attorney for specific help that can save the family money on taxes.
The above is not intended to be legal advice, but may be used for general information. Please contact an attorney for specific help tailored to your needs. www.figgardenlaw.com
I think the concerns are unfounded.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/