About: Liza Weiman Hanks

Recent Posts by Liza Weiman Hanks

Reporting Foreign Gifts

gift packageDear Liza: Does a person receiving a gift from a sibling in another country have to pay gift tax on that gift in the United States? In the United States, gifts are not considered ordinary income, so you don’t have to report them or pay income tax on the amount you’ve received. (If a US citizen, the person who gave the gift, called the donor, has to report all gifts over $14,000 per person per year, and will have to use up some of their lifetime exclusion from gift and estate tax for gifts over this amount. If they are super generous and give more than the amount excluded, currently $5.43 million, they would have to pay gift tax on those gifts.)

But, if you have received a gift from someone who is not a US citizen, then you may have to report to the IRS, even if you don’t owe gift tax. Here’s the rule, copied from a helpful IRS article:

“You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest.  Include on Form 3520:

  • Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

or

  • Gifts valued at more than $13,258 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).”

The IRS may recharacterize certain distributions from foreign partnerships, corporations, or trusts as not gifts, and then subject these to income tax or additional reporting requirements.

Capital Gains Taxes on Appreciated Property

houseDear Liza: My mother gave her house to my sister just before she passed away.  My sister is going to sell the house. Do we have to pay taxes on that? If your mother’s house had appreciated in value between the time your mother purchased it, and her death, then the answer is yes. I can’t answer even a fraction of the questions that people send to me, so I try to pick ones that I think will have value to many people. Your sister is going to owe capital gains taxes on the difference between what your mother paid for that house and what your sister sells it for. Capital gains taxes are levied on the difference between what someone paid for an asset (that’s called the basis) and what they sell that asset for later (they’re taxed on the gain, or difference between the basis and the sale price.)

Because your mother gave the house to your sister before her death, your sister received that gift with your mother’s original tax basis. For example, if your mother purchased her house in 1976 for  $65,000, and your sister sells it in 2015 for $365,000, your sister is going to owe capital gains on the $300,000 in value that the house gained between 1976 and 2015. (There’s a $250,000 exclusion from this tax for the sale of a primary residence if you’ve lived there for 2 of the last 5 years, but I don’t know if that applies to your mother’s house here. It could, I suppose.)

If your mother had instead gifted that house to your sister upon her death, via a Will or a trust, your sister would have inherited it with a stepped-up basis, which means that her basis in that house would have been the value the house had at your mother’s date of death. In the example I just used, if your sister inherited the house with a value of $365,000 (as shown by a qualified appraisal) and then sold that house for $365,000, she would have owed zero in capital gains taxes. That’s the difference between lifetime gifts (donor’s basis) and gifts made as a result of death (date of death value basis).

Amending a Survivor’s Trust

grandfather-506348_640Dear Liza: My parents have a revocable Trust that is very outdated and we want to make amendments to it. I understand most of the Trust but am having trouble with the Survivors Trust. I was surprised to see that upon the death of one spouse a Survivors Trust may be established. Is this really a necessary part of a Trust. Isn’t being the Co Trustee basically the same thing? A Survivor’s Trust is often created for tax planning. It’s common.  Many living trusts, especially those drafted prior to 2012 (when tax laws changed) are designed to minimize the estate tax at the second death. Trusts like that typically divide the trust estate into two trusts when the first spouse dies: one trust holds the decedent’s assets and is often called the Bypass Trust (or the Credit Trust); the other trust holds the survivor’s assets, and is called the Survivor’s Trust. Usually, the survivor can use assets in both trusts, but, to the extent that they don’t use up all the money in the Bypass Trust, that money passes estate tax free to the beneficiaries.  If your parents don’t have more than $10 million (like MOST people), their trust can most likely be simplified to just hold all of the assets in one, revocable trust after the first death. This trust is still often called the Survivor’s Trust. But this is all completely separate from who manages the trust, whatever it is called. That person is the successor Trustee, or, if appointed during your parents’ lifetimes, a co-Trustee. If you are helping your parents take care of their finances, and they’d like to help them manage their affairs, they can appoint you to serve with them now as a co-Trustee, or even resign, and let you take over as sole Trustee now.

How to Store That Plan

punch-402558_640Dear Liza: I’ve just completed my estate planning documents using the latest edition of WillMaker Plus, including the will, health care documents, power of attorney, final arrangements, etc. I think all totaled it comes to over 65 pages. I’d like to leave all the documents well-organized so they’re not just a pile of papers that would overwhelm the executor. I’d like to put the documents in a three-ring binder with a table of contents and tabbed for the different sections. Is it legal to hole-punch these documents, either before or after they’re singed and notarized? Would that vary by state? I have never heard of any law that would invalidate documents that were otherwise valid because there are physical holes in the paper. Sometimes my clients make a copy of their documents, hole punch those, and put the copy in a binder, then put the originals in a safe deposit box or safe in their house. It’s great that you are trying to make things easier on your loved ones. Here’s a few other things you could put in the binder: a list of your passwords to online accounts; a list of your accounts, life insurance policies, and other assets; contact information for your heirs and beneficiaries; and a list of people that you work with, if any, such as tax preparers and financial advisors.

Do I Need a Special Needs Trust for a Son on SSDI?

Disability symbolDear Liza:
I have an adult son who is developmentally disabled. He is able to work and receives Social Security Disability Insurance as well as Medicare. Does he need a Special Needs Trust?


I love it when someone asks me a question with a clear answer! Here, the answer is probably not. Your son receives Social Security Disability Insurance (SSDI), which is a benefit that he receives because he was able to work and pay into the Social Security system. This is not a needs-based program like Supplemental Security Income (SSI), which people receive when they are permanently and severely disabled and qualify for this assistance because their resources are limited.  Medicare is an age-based health insurance program, so it’s not needs based either.

Special Needs Trusts are designed to allow parents (and others) to create a trust for the benefit of someone on SSI that can be used to supplement this government benefit without disqualifying someone from the program (and from Medicaid programs, which offer health insurance to those who qualify for SSI). If your son is not going to need SSI in the future, and will continue to receive SSDI and Medicare, then a Special Needs Trust won’t be necessary to protect his ability to continue to receive those benefits. That being said, of course, it still sounds like you need to leave him assets in a trust, with a Trustee who can manage resources for his benefit. This trust, however, does not need to meet the stringent requirements of a Special Needs Trust.


To read more about Special Needs Trusts and the differences between SSDI and SSI, take a look at Special Needs Trusts (Nolo, 5th edition).

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