[ElDiabloJoe]

My neighbor up north is an elderly woman. She has three adult children and wishes to split her estate up evenly amongst them. While sitting on a very healthy high 6-digits in various savings accounts and a paid off house, she is also sitting on an ever climbing 900,000 in investment funds with a large national advising firm.

While she understands she can give $18,000 a year to each without penalty incurred by any party, the is entertaining the idea of disbursing her 900,000 prior to death. This is due to her concern about the way the world is going, the wars, economic instability, dollar de-valuation, inflation, etc.

While under Trump there was something about up to 20 Million could be inherited without tax or fee consequence, she asked me about whether or not she could disburse the 900,000 without incurring any fees or tax consequences to her or the recipient children.

My amateur opinion is that the $300,000 each would be a taxable income event unless it were inheritance doled out after she passed away. That would cost each recipient approximately $65,000 in taxes (assuming combined Fed and State rate of 25%).

Are my initial thoughts on this accurate, or are there additional considerations and fiscal dynamics that would be at play in her scenario?

[Bogie Shooter]

She should ask a CPA.

[dewilson58]

She can gift and the excess (over the $18k) can be applied against her LifeTime exemption.

Must file with IRS.

[CoachKandSportsguy]

yes, as I was given this information from a CPA, so its a second hand solution which should be done by an elder law attorney to avoid a successful governmental challenge.

The elderly woman gives an interest free loan of X amount to each / any child
Any loans are forgiven at death in wills and trusts.

You are welcome.

good luck

finance guy who learns tax stuff by experience and discussions with CPAs and lawyers
and is currently solely managing investments and distributions and taxes of two trusts,
both now irrevocable.

[retiredguy123]

The current estate tax limit is $13.61 million. As long as her estate is not higher than that, she can give away all of it either now or after death and there will be no taxes owed by either her estate or her heirs. If the money is given as a gift, the receiver doesn't owe any tax. Gifts are not taxable income. However, there may be capital gains consequences when sold, if the gifted assets have a taxable cost basis. I would definitely recommend that she consult with an estate planner before gifting her assets.

[ElDiabloJoe]

Appreciate the input. I already strongly suggested she consult with her tax and financial advisors. I'm not sure why she asked me about it instead. My best guess is she knows we have the two houses so thinks we might know more than we actually do know.

[manaboutown]

She needs to talk this over with an estate attorney - or three and perhaps a financial advisor. This scares me. If her assets were ten times as much I can see her advancing some funds. She could burn through $900K in assisted living if she requires it. She should definitely refrain from giving away appreciated assets during her lifetime because under current law they will receive a stepped up basis to her heirs upon her demise. Question: How is she cognitively?

[charlieo1126@gmail.com]

Retired guy is right , I’ve been giving money since I was 75 ,now in mid 80’s , I’m a true believer in the old proverb “better to give with an open hand , then a closed casket” . But man about town has the right idea also. I’m in perfect health so after I pass 100 , maybe I’ll have to slow the gift giving down

[CoachKandSportsguy]

Originally Posted by manaboutown

She needs to talk this over with an estate attorney - or three and perhaps a financial advisor. This scares me. If her assets were ten times as much I can see her advancing some funds. She could burn through $900K in assisted living if she requires it. She should definitely refrain from giving away appreciated assets during her lifetime because at her death under current law they will receive a stepped up basis to her heirs upon her demise. Question: How is she cognitively?

If she disposes her assets prior to becoming cognitively impaired, she will be eligible for Medicaid from the state. There is a time limit of 5 years (from memory no pun intended) from giving away all, to being eligible for Medicaid.

Now, for medicaid reimbursement for medicaid fraud, the state will put a lien like claim on the property, etc though probate court, but with no assets, the state can't recover much, if anything. So if she gives away assets other than the house, a loan would not be the best way, and keeps her house only, the house in a trust would avoid probate and MAY be eligible for medicaid without selling the house, OR sell the house and pay for assisted living from that until eligible for medicaid. .

There are solutions, but elder law attorney is the best. . FYI assisted living where my mom is increases their annual rate at 7-15% a year, which compounds very quickly. starting at 10K per month this year. . and she has been there cognitively impaired for three years and surpassed the life expectancy living with dementia/alzheimers . .

good luck

sportsonlyguy

[JoMar]

My family knows that when we pass if there is anything left we screwed up.

[retiredguy123]

Originally Posted by CoachKandSportsguy

If she disposes her assets prior to becoming cognitively impaired, she will be eligible for Medicaid from the state. There is a time limit of 5 years (from memory no pun intended) from giving away all, to being eligible for Medicaid.

Now, for medicaid reimbursement for medicaid fraud, the state will put a lien like claim on the property, etc though probate court, but with no assets, the state can't recover much, if anything. So if she gives away assets other than the house, a loan would not be the best way, and keeps her house only, the house in a trust would avoid probate and MAY be eligible for medicaid without selling the house, OR sell the house and pay for assisted living from that until eligible for medicaid. .

There are solutions, but elder law attorney is the best. . FYI assisted living where my mom is increases their annual rate at 7-15% a year, which compounds very quickly. starting at 10K per month this year. . and she has been there cognitively impaired for three years and surpassed the life expectancy living with dementia/alzheimers . .

good luck

sportsonlyguy

I would never advise someone with a net worth of over $1 million to endeavour to become eligible for Medicaid.

[Bill14564]

EDIT: Comments below are OBE. Apparently, you can essentially distribute your estate while you are still alive. See IRS form 709 and its instructions.



Definitely want to talk with a tax attorney about this.

Typically, the recipient of a gift does not pay tax. However, that doesn't mean tax is not owed. If the gift value is higher than the annual exclusion then tax will be owed and it is typically the donor who is required to pay.

Whether the $300,000 is given and the child pays the $65,000 or if the $65,000 is deducted first, the child will end up with $235,000 and the IRS with $65,000. At least that's the way I read the IRS information on gift taxes. On the other hand, I am not a tax attorney.

[retiredguy123]

Originally Posted by Bill14564

Definitely want to talk with a tax attorney about this.

Typically, the recipient of a gift does not pay tax. However, that doesn't mean tax is not owed. If the gift value is higher than the annual exclusion then tax will be owed and it is typically the donor who is required to pay.

Whether the $300,000 is given and the child pays the $65,000 or if the $65,000 is deducted first, the child will end up with $235,000 and the IRS with $65,000. At least that's the way I read the IRS information on gift taxes. On the other hand, I am not a tax attorney.

Note that the annual exclusion only reduces your lifetime estate exclusion from the $13.61 million lifetime limit, and requires you to file a gift tax return with the IRS. It does not trigger any estate tax for you or the recipient until your gifting exceeds the lifetime limit. For example, if you give $100,000 to an individual this year, your lifetime estate limit of $13.61 million will be reduced by $82,000 ($100,000 minus $18,000), but you would owe no estate tax. The only reason to file the gift tax return is to document that the lifetime exclusion has been reduced.

Even if you have a billion dollars, you can give it all away while you are still alive as long as you give no more than $18,000 per year per recipient, and pay no estate tax. And, when you die, you will still have an estate tax exclusion of $13.61 million. After death, the $18,000 annual exclusion is no longer available, and the entire estate, less the exclusion, is taxed.

[manaboutown]

The OP wrote she had high six digits in bank accounts and about $900 in investment accounts. The stock market has become very pricey, high P/Es and so on. It could take a hit anytime IMHO. Her $900K could shrink literally overnight to, who knows, $700K or even $300K. A rising tide lifts all boats/ships which is what we have experienced over several years. But when the tide goes out...

[Bill14564]

Originally Posted by retiredguy123

Note that the annual exclusion only reduces your lifetime estate exclusion from the $13.61 million lifetime limit, and requires you to file a gift tax return with the IRS. It does not trigger any estate tax for you or the recipient until your gifting exceeds the lifetime limit. For example, if you give $100,000 to an individual this year, your lifetime estate limit of $13.61 million will be reduced by $82,000 ($100,000 minus $18,000), but you would owe no estate tax. The only reason to file the gift tax return is to document that the lifetime exclusion has been reduced.

Note that, even if you have a billion dollars, you can give it all away while you are still alive as long as you give no more than $18,000 per year per recipient, and pay no estate tax. And, when you die, you will still have an estate tax exclusion of $13.61 million.

I don't think a person could live long enough or have enough children to give away $1B in chunks of $18,000/child/year. But yes, I understand the point.

The basic exclusion calculation was hard to find. The IRS says gift tax yes, unless no, but maybe yes, except for basic exclusion, which was increased in 2018, but significantly decreases in 2026, and then is only explained on the form but is explained in IRS-speak which is barely intelligible. Ultimately, it looks like you are correct but it sure isn't easy to figure out.