Dear Liza: My uncle recently passed away. He named both my grandmother and myself as Personal Representatives of his Will, with a clause stating that if a guardian is needed to care for his children or their property, he named me and my grandmother. The clause also states that if any of his children are under the age of 21, the guardian shall serve as custodian for his or her property under the Uniform Transfers to Minors Act until she reaches 21. His 17 year old daughter is the sole beneficiary on his life insurance policy form his employer. Will we be able to utilize this policy to assist with his funeral arrangements? I’m sorry to hear about your uncle. And I’m sorry to answer your question with a resounding, “nope!” Your niece is the beneficiary of that life insurance policy, and you, as the custodian for that property, can only use it for her benefit, not for the funeral arrangements of her father. Money left in a custodial account can only be used for the benefit of the minor, not anyone else. You’ll have to find another way to pay for those funeral arrangements.
Category Archives: Gifting
Dear 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);
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.
Dear Liza: My long term domestic partner of 30 years and I were registered domestic partners for a few years and then she decided she wanted to be totally financially independent of me so we terminated the agreement last year. We are still together as a couple and live five minutes away from each other. Our intention is to leave everything we own to each other and have named each other as executors in our wills. She owns a house that she may or may not be selling but in general our estates are pretty modest. I am wondering since we are still a couple is there is an advantage in terms of avoiding probate in getting married versus doing a living trust? First, can I just say I love being able to have this conversation! Now, down to business. There’s a lot packed into your question. I’m going to answer on a general level, but I think it would be worth it for you and your partner to sit down with an accountant and an attorney and see how my advice addresses your particular concerns.
There are three key estate planning advantages to getting married for same sex couples now, but I wouldn’t frame it as a living trust versus marriage. That’s kind of apples and oranges. A living trust will still allow you to transfer your assets to each other without probate, regardless of whether or not you marry. But being married has two key federal and one state TAX advantage, all of which you’d realize with or without a living trust.
1. Married couples get a step up in basis when one spouse dies on all community property assets. That means that the surviving spouse won’t have to pay capital gains on any appreciated assets that she sells after the first death, other than any gain that happened after the death of the first spouse. For example, if your partner’s house has appreciated a lot since she bought it, and you marry and make that house community property, when one of you dies, that house would be valued at its date of death value, not the original purchase price.
2. Married couples get an unlimited marital deduction from federal estate and gift tax. That means that you and your spouse can give an unlimited amount of assets to each other, at death or during life, and no federal estate or gift tax will be due for those gifts. For those with modest estates (which are most of us) this isn’t as big a concern now that the federal estate and gift tax exemption is $5.25 million, but that number may be reduced by Congress in the future, and it is a benefit that only spouses receive. This, in fact, was the basis for Edie Windsor’s challenge to DOMA.
3. Married couples can pass real property to each other in California without a change in property tax rates. A transfer between spouses is an exception to Proposition 13’s reassessment requirement. Since you and your partner terminated your Registered Domestic Partnership, and it sounds like she purchased the property alone, her transfer of the house to you via a Will would trigger a change of ownership and reassessment for at least 1/2, if not all, of the property, depending on how she holds title at her death.
Dear Liza, I would like to give my son $200k to upgrade homes. Can me and my wife each give $13,000 to my son, daughter in law, and two grand children? That would be $102,000, and then apply the remaining $98,000 to the unified tax credit. Can I write it all in one check for the four of them? You can write one check for your son and daughter. You can now give $14,000 per person, so you and your wife can give, together, $56,000 to them, as an annual gift, and the remainder can be reported on your gift tax return, filed in April of the following year. If your grandchildren are minors, though, you have to give them a gift into a custodial account, a trust, or a 529 educational savings plan. Children under the age of 18 can’t own property worth more than a nominal amount without a custodian to manage that money.
Dear Liza: My brother gave me two checks totaling $200,000 in 2012 as a gift. Who pays the tax on that? You have a generous brother! And, in the no good deed goes unpunished department, it is the DONOR of the gift (your brother) who is responsible for reporting the gift and paying the tax due, if any. You, the DONEE, receive the gift free of tax because gifts are not ordinary income under the income tax rules. In 2012, gifts under $5.12 million dollars are not subject to gift tax, but any gift over $13,000 must be reported on a gift tax return by April, 2013. Your brother must file that return, which tells the IRS that he made you a gift of $200,000. Assuming he hasn’t made other gifts that exceed that $5.12 million, though, no tax will be due. Instead, by reporting the gift, your brother has used up some of his lifetime gift tax credit–the tax that would otherwise be due on a gift of $200,000.
Dear Liza: My grandfather died in 2008. My mother is the first successor on the trust. We did all the post administration for the trust or so we thought. I recently read that my mother should have filed a deed to get the house placed into her name since that is what the trust called for. We have not done this. My question is the following…My mother wants the house to go to me, her son. What process would we have to do in order to get it from the trust to me? Your grandmother can file the deed she didn’t file after your grandfather died, getting the house into your grandmother’s name, as Trustee of the trust created by your grandfather. Once that’s done, her ability to give that house to you during her lifetime depends upon the terms of the trust your grandfather set up. She may be able to give it to you during her lifetime, in which case you will receive it at the value that it had in 2008, when your grandfather died. She may only be able to transfer it to you at her death, in which case you will inherit it at the value the house has at her death. She may not be able to give it to you at all, because, as you said, the terms of your grandfather’s trust became irrevocable at his death. I would advise you to see an estate planning attorney in your state to review your grandfather’s trust and advise your grandmother on the best strategy to accomplish her goals.
As for that mortgage, if you get the property transfer completed, you’ll have to request that the lender assume the loan in your own name, which they may or may not do, that depends on their calculations and your credit history.
Dear Liza: I am divorced and own a second vacation cabin that I want my children to have when I die. Is there a way for me to retain rights, ownership and control while I am alive and of sound mind but pass the property to them when I die that doesn’t have a bunch of overwhelming taxes? Yes. Upon your death you can leave the kids the cabin either outright or in a trust. If you leave it to them outright, as tenants in common, each will own 1/2 and can leave their half to whomever they choose when they die. If you leave it to them in trust, you can control how it’s managed and how it would be transferred upon their deaths (as in maybe it has to go to their children or be sold to other family members.) The tax treatment of the gift is that it will go to them free of tax — if there’s a tax to pay, it falls on your estate, but they inherit what’s left free of tax. The capital gains tax basis on the property will be what it is on your date of death, so if they sell it someday, they’ll owe tax on the gain in value from your date of death to the date of sale. I don’t know what state you live in, but in California, where I practice, a gift from parent to children is also excluded from reassessment of property tax, so they get the property tax rate you were paying.
My dad has transferred $13,000 in stock for several years to me. I would like to transfer some stock to my son who in turn would like to sell that stock to help purchase a house. Who will owe the capital gain taxes? For example say the stock was worth $20 a share when transferred to me but when I transfer to my son it is worth $40 a share. Gifts given during life (from your father to you; from you to your son) retains the donor’s basis: so, for capital gains purposes, the stock is still worth $20 a share when you give it to your son, because that’s what the basis in the stock was when your father gave it to you. If you give it to your son, and he sells it, he will pay the capital gains on the sale.
Dear Liza: I thought about putting my son on the title of my house so he would have additional financial support. I’m not just real comfortable with that idea. I know creditors can and do go after people with ownership to a home.My son is doing well, but he does have a large student loan he needs to repay. What do you think about my adding him to the title of my house? I think you should listen to that inner voice that isn’t comfortable with the idea. You are absolutely right that adding him to the title puts your assets at risk to his creditors. Also, if you put him on title, you are making a taxable gift to him of one-half the value of the house and you should report that on a gift tax return by April 15th of the following year. (You won’t owe any gift tax, most likely, because at the moment you can give up to $5.12 million without having to pay gift tax, but you still have to report any gift over $13,000.) Finally, he will get your one-half of the house with a capital gains tax basis of what you paid for that house (and I’m guessing it’s appreciated since then.) If he ever does sell it, he’ll owe capital gains taxes on the amount it’s appreciated since you purchased it. You can leave him the house at your death, if that’s what you want to do, but for now, I wouldn’t recommend it.