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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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Elder law question Mother in law need to gift away over 600k

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Elder law question Mother in law need to gift away over 600k to get her estate down under one million dollars I understand the 14,500 per year and if it more the 14K she will after fill out a IRS form so they can still gift tax free and the gift can be 200k to each child in the same year she is not ill or sick but its the right time is there a look back we dont care about medicare is this one way to reduce her tax liablity

The other way is how can she set up trust so it would immediately reduce her tax liability so she parts with the 600k and leave it to her kids instead of gifting like above or does she need to gift first then set up trust what are the rules look backs on trust and what is best

Main purpose what is best and how do you do set the trust she as 3 grown children
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
The gift is not taxable for recipients. Please see for reference IRS publication 525 page 31 left column - - http://www.irs.gov/pub/irs-pdf/p525.pdf


Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.


There is no any amount limit. That is for income tax purposes. That would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year.
There will not be any gift taxes unless the lifetime limit of $5,250,000 (adjusted every year for inflation) is reached.

Lev :

So based on your information - your Mother in law may simply gift away the total amount of $600k - and there will not be any federal gift tax liability.
There is no gift tax in NY - see for reference - http://tax.custhelp.com/app/answers/detail/a_id/424/~/has-the-new-york-state-gift-tax-been-repealed%3F
Has the New York State gift tax been repealed?


Yes, gift tax returns don't have to be filed for gifts made on or after January 1, 2000.
So far - gift tax liability is not an issue, but filing gift tax returns might be required.
Assuming she will gift $200k to each child - the taxable gift will be ($200k - $14k)*3=$558k - but no gift tax return liability because that amount is below the allowed lifetime limit that is $5,250k for 2013.

Lev :

If she set a trust and move her assets to the trust - she need to consider the type of the trust.
If that is a living trust which generally is classified as a revocable grantor trust - it is ignored for income tax purposes - and all assets are still considered as owned by her as long as she is alive. After she died - the trust becomes irrevocable - and is treated as a separate legal entity.
She may create an irrevocable trust right away - and it will be a separate entity. In this case she will not legally own assets transferred to the trust.
All depends on what type of properties she has and if she want retain control over these properties.. If these are financial accounts - she may name beneficiaries and account swill be transferred upon her death and she might not need the trust.
If there are some real properties - the trust might be helpful to avoid probate.

Customer:

Lev Ok so the fact is that we want to reduce a tax burden what is the best to do if its a irrevocable Trust is 600k in cash you are saying there are no look back is this correct can she put her house in the trust also

Customer:

house is worth 650k she as one million in the back so what is the best thing to do to reduce her New State Tax liability

Customer:

she fell down a flight of stairs 6 months and got lucky if she died she would have taxes on the 600 k because she is over the one million dollar mark

Customer:

so what is the best direction we want to get here state down

Lev :

You wrote "we want to reduce a tax burden" - as there is NO gift tax and there is nothing to reduce.
If you are thinking about possible income tax liability - it will not be reduced with using the trust. You may only shift income tax liability from her to the trust. But generally trust's income tax rate are higher - so I do not see any savings.

Customer:

if there is a trust made and its Irrovable Trust who can be the trustee there a 3 children involded would the trusty have full control of finiancial decision with the financial investor

Customer:

and does it work who make the decision were to keep the money invested

Lev :

If you are worry for transferring assets - I suggest to start transferring right away.
Thus she may simply gift $14k to each child, their spouses, grandchildren, etc - and her assets may be reduced significantly. Then - she will do another round of gifting in 2014.

Lev :

If she want to have a separate irrevocable trust - she may appoint as a trustee any person - including herself.
She may appoint any child or all three children as co-trustees.

Customer:

Lev you dont get gicing away 14 to 3 kids does not help reduce her tax burden asap she need to reduce her assets to bring it under the New York State l;aws if she died 6 months also she would be over the one miilion dollar mark and owe taxes on 600k that would have been over 125k in taxes

Customer:

again we are trying to get rid of 600k to bring her burden down is it done with a Trust ? of gifting lump some at 200 k per child

Customer:

what is best to do and why

Customer:

If something happens to her in the next 6 months we dont want her to show she as 1.6 million to her name she is 600k over New York state rules we need to get 600k out of her name fast

Lev :

That is correct - we may not solve all issues in short period of time.
By gifting small amount - you will solve some issues - not all.
But if assets will be transferred to the trust of gifted away - they will be also subject of NY estate taxes if she died too soon.
The best would be start gifting as soon as possible - and hope she will live long enough to spend most of her assets.

Customer:

is she does irrovocale trust with 600 k does this help reduce her estate asap who is the Trustee can trustee be one child or all 3

Customer:

she will not spend any money she is old italian lady does not spend money please explain died to soon are you saying there is a look back ? if so how many years I thought gifting is no look back

Customer:

this is not for medicare its to get her estate under one million dollars

Customer:

what is the diference on just gifting the 200k to kids now

Customer:

or having a trust with the 3 kids as benificary

Customer:

if she put the money in a trust no bobody can touch the money until she dies is this corrct

Customer:

if she gives the 200k to the kids now as a gift its liquid I am correct and she need money for medical purpores the trust would not help here correct the money would be tied up

Lev :

All gifts and transfers to the trust within one year are included into her estate for estate tax purposes.

Lev :

So - if she dies within one year from now - there is nothing you may do to reduce her assets.

Customer:

ok good

Lev :

So - the best would be start gifting as soon as possible - and hope she will live long enough to gift away most of her assets.

Customer:

so whats best do if the kids need her to help with medical bills they would not have access to the trust until she dies

Customer:

can she gift 200 k per kid then the money is liquid and she does in 3 years we are good

Customer:

if she as monrey in iroovable trust then the money is not liquid correct

Customer:

sorry if she gifts now large sums and lives for another 2 years we are good

Lev :

Creditors may obtain a judgment and collect by levy on her assets.
The judge may apply collection to assets that were gifted or transferred to the trust if the judge decides such assets are hiding from creditors.

Customer:

if she as irrevocable trust money is not liquid correct

Customer:

there no credit issues

Customer:

Lev please answer question if she as irrovable trust the money cant be touched correct but will reduce her Tax issue

Customer:

if she gift her money then money is liquid to chidren to use or help in 3 years to help medical bills etc

Lev :

The irrevocable trust is a separate legal entity - assets in such trust do not belong to the settler and do not belong to beneficiaries (children).
And if creditors obtain a judgment against her that judgment may not be used to levy on irrevocable trust assets.
However if creditors find out about the trust that that she transferred the money to the trust after her liability existed - then creditors may request the judge to attach the judgment to the trust and in this case trust's assets may be levied.
The best would be to negotiate with creditors and close the issue.

Expert:  Lev replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

The irrevocable trust is a separate legal entity - assets in such trust do not belong to the settler and do not belong to beneficiaries (children).
And if creditors obtain a judgment against her that judgment may not be used to levy on irrevocable trust assets.
However if creditors find out about the trust that she transferred the money to the trust after her liability existed - then creditors may request the judge to attach the judgment to the trust and in this case trust's assets may be levied.
The best would be to negotiate with creditors and close the issue.

If you haven’t already done so, please take a moment and rate your answer above - so I would be credited. Or, you can reply to me using the box below.
Customer: replied 1 year ago.

Hi Lev if she does irrevocable trust with the kids as the beneficiary,


 


can the trust be set up if she needs to take care of some health issues and she needs to pay some bills how can the trust pay for then if its irrvocable trust ?


 


after later i will give you nice review

Expert:  Lev replied 1 year ago.
Hi and welcome back.
As a settler - she may set an irrevocable trust with herself as a beneficiary and her children as contingency beneficiaries.
As a beneficiary of the trust - she may use distributed funds for her own purposes or purposes described in trust's documents.

In particular - she may direct the trustee to use the designated trust funds to pay the medical expenses of the beneficiary.
Another option - to set a "special needs irrevocable trust" - that option may be discussed with the attorney.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22845
Experience: Taxes, Immigration, Labor Relations
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Lev
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Taxes, Immigration, Labor Relations