Please tell me if you can understand my explanation of gift tax

[mrichman333]

Clients can be a big PAIN IN THE A _ _!!! So I got email from a tax customer, he had a question about gift tax. He wanted to know how much his elderly mother-in-law can give him each year. He believed it was $13,000 per year but as of 2013 it is $14,000 per year

PLEASE tell me if you understand what I told him

You can give a gift of $14,000 per person per year and not need to file a gift tax return or pay any gift tax.

There is also a life time maximum you can give without paying taxes of $5,250,000 (2013).

The IRS gives a unified credit based on that amount which equals $1,772,800.00

Here is an example:

I gift you $30,000, that is more than the 14,000 so I (not you) must file a gift tax return

I calculate the taxable gift as follows.

30,000 – 14,0000 (the annual exclusion) = 16,000 that I must show on a gift tax return.

Let’s say the tax on the 16,000 is $3,000

I can apply the life time credit

$1,772,800.

- 3,000

$ 1,769,800 That I have left to apply to future gifts.

I do not have to pay any gift tax but I do have to file a return because I gave a gift over the $14,000 annual exclusion.

He emailed me back

We need to get mother assets below 80k so she can get VA sr care benefit. There is no look back. She has about 260k now. She is going into assisted living

My response

She can gift all of it to you and --- she'll have to file a return but there will not be any tax because she will not have exceeded the life time credit.

His response he wants to come over with his wife and discuss it. WHAT, what is to discuss???

[JohnH]

Mr Pencil and I agree completely.

Sounds like they may want to drag you into the conversation so if anything goes wrong they can try and blame you. When I get these type of inquiries, I tell them about the gift tax implications and I tell them if they have ANY OTHER QUESTIONS they need to pay an attorney specializing in Elder Care to advise them. I usually try to put that in an email so I've documented the advice.

If I had a client who doesn't use email, I'd probably put a footnote on the bill for their visit, or send them a memorandum if I chose not to charge for the visit.

[Mr. Pencil]

His response he wants to come over with his wife and discuss it. WHAT, what is to discuss???

Since the expected estate is so far below five million, the estate and gift tax provisions are irrelevant except for the requirement to file the return. Pub 950 explains the issue pretty clearly, even though it wasn't updated last year.. The Instructions for Form 709 give more technical details.

However, be careful not to suggest there are no implications to such a gift. Refer your clients to a qualified estate planner. The mother may well have specific things in mind for her assets, such as charitable contributions, college funds for grandkids, or whatever.

[michaelmars]

DOES your state have state gift taxes to consider?

[JohnH]

NC doesn't.

[kcjenkins]

I'm guessing what he's really worried about is HIS tax liability. Your advice was correct, but you did not spell out one thing. You need to spell out clearly ONLY THE GIVER PAYS GIFT TAX, IF ANY, THE PERSON GETTING THE GIFT PAYS NOTHING AND HAS TO FILE NOTHING. Often, that is what they are worrying about.

That said, there are other issues, like who pays for her future care if she gives everything away. And especially, who else is, or even 'might be' an heir, and how they would feel about it. Also, "assisted living" is only the first step, usually. It only lasts as long as the person is able to care for themselves at least somewhat. Once they need nursing home care, that changes, and some places that next step is part of what is offered, but not always. Clearly, any wise person gets legal advice in advance, before making any decisions on such an important issue, TO PROTECT BOTH THE GIVER AND THE RECIPIENT.

[Jack from Ohio]

Assisted living has several possible caveats. In Ohio, once the resident had depleted assets and wants Medicaid to take care of her, there is a 5 year lookback. Be careful of the term "no lookback" because I find that phrase hard to believe.

I totally agree with JohnH about this:

"<<<Sounds like they may want to drag you into the conversation so if anything goes wrong they can try and blame you. When I get these type of inquiries, I tell them about the gift tax implications and I tell them if they have ANY OTHER QUESTIONS they need to pay an attorney specializing in Elder Care to advise them. I usually try to put that in an email so I've documented the advice.>>>"

That is a lot of assets to be tossing around without being TOTALLY certain!!!

[Lee B]

Also, if for whatever reason the senior ends up in a nursing home paid by medicaid

past gifts may well end up being examined.

[mrichman333]

Mr Pencil and I agree completely.

Sounds like they may want to drag you into the conversation so if anything goes wrong they can try and blame you. When I get these type of inquiries, I tell them about the gift tax implications and I tell them if they have ANY OTHER QUESTIONS they need to pay an attorney specializing in Elder Care to advise them. I usually try to put that in an email so I've documented the advice.

If I had a client who doesn't use email, I'd probably put a footnote on the bill for their visit, or send them a memorandum if I chose not to charge for the visit.

"Sounds like they may want to drag you into the conversation so if anything goes wrong they can try and blame you: Yep that is what crossed my mind

[mrichman333]

DOES your state have state gift taxes to consider?

No not in NJ

[mrichman333]

I'm guessing what he's really worried about is HIS tax liability. Your advice was correct, but you did not spell out one thing. You need to spell out clearly ONLY THE GIVER PAYS GIFT TAX, IF ANY, THE PERSON GETTING THE GIFT PAYS NOTHING AND HAS TO FILE NOTHING. Often, that is what they are worrying about.

That said, there are other issues, like who pays for her future care if she gives everything away. And especially, who else is, or even 'might be' an heir, and how they would feel about it. Also, "assisted living" is only the first step, usually. It only lasts as long as the person is able to care for themselves at least somewhat. Once they need nursing home care, that changes, and some places that next step is part of what is offered, but not always. Clearly, any wise person gets legal advice in advance, before making any decisions on such an important issue, TO PROTECT BOTH THE GIVER AND THE RECIPIENT.

I did explain in a different email that the givers pays the tax.

[mrichman333]

Also, if for whatever reason the senior ends up in a nursing home paid by medicaid

past gifts may well end up being examined.

I will tell them to get legal advice on that.

[easytax]

I'm guessing what he's really worried about is HIS tax liability. Your advice was correct, but you did not spell out one thing. You need to spell out clearly ONLY THE GIVER PAYS GIFT TAX, IF ANY, THE PERSON GETTING THE GIFT PAYS NOTHING AND HAS TO FILE NOTHING. Often, that is what they are worrying about.

That said, there are other issues, like who pays for her future care if she gives everything away. And especially, who else is, or even 'might be' an heir, and how they would feel about it. Also, "assisted living" is only the first step, usually. It only lasts as long as the person is able to care for themselves at least somewhat. Once they need nursing home care, that changes, and some places that next step is part of what is offered, but not always. Clearly, any wise person gets legal advice in advance, before making any decisions on such an important issue, TO PROTECT BOTH THE GIVER AND THE RECIPIENT.

Assisted living has several possible caveats. In Ohio, once the resident had depleted assets and wants Medicaid to take care of her, there is a 5 year lookback. Be careful of the term "no lookback" because I find that phrase hard to believe.

I totally agree with JohnH about this:

"<<<Sounds like they may want to drag you into the conversation so if anything goes wrong they can try and blame you. When I get these type of inquiries, I tell them about the gift tax implications and I tell them if they have ANY OTHER QUESTIONS they need to pay an attorney specializing in Elder Care to advise them. I usually try to put that in an email so I've documented the advice.>>>"

That is a lot of assets to be tossing around without being TOTALLY certain!!!

Also, if for whatever reason the senior ends up in a nursing home paid by medicaid

past gifts may well end up being examined.

No not in NJ

Almost ALL STATES have the "look back" provision when it comes to Medicaid picking up the costs after "known" assets are used up.

Also, may or not be true in your state(s) ==== Gift tax, whether federal or state can be/are different from inheritance taxes; which sometimes with senior care can have previous to death look backs. Inheritance taxes are also very different from gift taxes.

My jobs done ==== I've muddies the waters again/more ---- Ed.

[kcjenkins]

Yep. there are so many different factors here, only sane choice is to send them ALL to an attorney before they do anything. As mentioned, 'lookback' can come at several points, from different sources, others who might be considered heirs based on state laws, which varies, can object and take him to court, just to mention a couple.

[Mr. Pencil]

be careful not to suggest there are no implications to such a gift. Refer your clients to a qualified estate planner.

After I posted this several members have agreed in what I consider too cautious a way. In my opinion, this is a reasonable tax planning engagement for you to take. You are able to answer their specific question accurately and clearly, and have a couple of IRS references to back up and expand what you tell them. Unless the mother is also your client, you have no particular obligation to her. Even if she is your client this factual information about gift tax would not be a problem.

As for a look back period, the possibility of Medicaid would suggest she make the transfer as soon as possible. On the other hand, $260,000 will last four or five years in facilities that are a whole lot nicer than V.A. or Medicaid will provide. The government programs basically just take the pension money anyway.

[Guest Taxed]

The tip of the iceberg is when a client says they are trying to qualify for medicaid or some other Govt. program to pay for elder care/nursing home etc.

That is beyond my pay grade and I get asked similar questions every tax season. I refer them to a local family law attorney who gives me referrals. In my state there are complicated look back rules.

I am not putting anything in writing.

[Jack from Ohio]

After I posted this several members have agreed in what I consider too cautious a way. In my opinion, this is a reasonable tax planning engagement for you to take. You are able to answer their specific question accurately and clearly, and have a couple of IRS references to back up and expand what you tell them. Unless the mother is also your client, you have no particular obligation to her. Even if she is your client this factual information about gift tax would not be a problem.

As for a look back period, the possibility of Medicaid would suggest she make the transfer as soon as possible. On the other hand, $260,000 will last four or five years in facilities that are a whole lot nicer than V.A. or Medicaid will provide. The government programs basically just take the pension money anyway.

Between 2-3 years at current assisted facility prices. $70K-$100K per year. I have clients paying, so this is NOT conjecture.

[mrichman333]

_{I highlighted the personate information in Pub. 950 and sent it to him in a email for his reference, I also reminded him I can only speak to the tax implications of giving gifts and not the legality of his mother-in-law gifting her assists so she qualifies for any programs and that he would need to speak to an attorney about that part.}

_{He emailed back and said that part has been done. Not sure I believe it.}

_{I do find it hard to believe Virginia has no look back period. But then again a lot of rich politicians live in VA and it may benefit them. who knows.}

[easytax]

I've not only had several clients in the "homes", etc. (yes. 80-100K yearly is usual) but I had to spend over a year in one myself. Unfortunately, basically I became a "ward of the government" as most of my assets went toward that time until I "qualified" (read had next to nothing) for Medicaid. Thankfully under PA's "impoverished spouse" rules I was able to at least "help out" my spouse and we had enough for when I finally figured out HOW to get out of the "home" and off Medicaid, to basically start over again.

Even several clients (healthy) looked at assisted living (not a lot of medical, just basics (food, room, etc.)) and found that the decent facilities still charged over $4K monthly. Most of them also wanted "lifetime" requirements for my clients to "give them" (facility) the family home, etc.; should anything happen and more stringent medical care (more than just assisted living) was needed --- for them to stay with the "facility" (this was a requirement BEFORE the facility would "take them in".

These all had look backs of at least 3 and usually 5 years from when the application was written to the facility.

[mrichman333]

I meat with the clients yesterday. First time I meat the wife she is very nice. Before they arrived I remembered they haven't paid their mortgage in 2 years and are getting a a loan mortification. That's what he was concerned about. I said nothing.

She wanted to make sure all her mom's asset's could be gifted to her without any gift tax or income tax requirements. Got the impression she didn't believe him.

He is a "Fill in the blank" because I cannot come up with a word to describe this guy.

But I will say HE IS WHAT IS WRONG WITH THIS COUNTRY

More back ground. He, not both of them, he, filed bankruptcy in 09. Right before they went to court He leased her a Lexus for $525 a month, he drives a Mercedes. Only he works, so she really doesn't need a car.

This past year they had a cancelation of debt from Macy's for $900. I guess bankruptcy didn't stop them from shopping at a expensive store on credit.

They are also on a payment plan with the IRS.

His mother-in-law is in a rent controlled apartment and he was talking about getting money out of the land lord for having mom move.

She also has an annuity and he was talking about how he can get money out of them for a buy out. And on and on and on. She was in tears because her mom is on her way out and she has to deal with all this crap. He was thinking of ways he can benefit financially from all this. WHAT A JERK!!!

[JohnH]

If mom happens to live longer than expected, his self-centered shenanigans will guarantee that she ends her days in the worst possible circumstances, with no choices and no financial cushion. His wife should take note of this, because if he outlives HER, there will be a re-run of this scenario in some form.

[Guest Taxed]

>>> She was in tears because her mom is on her way out and she has to deal with all this crap. He was thinking of ways he can benefit financially from all this. WHAT A JERK!!!

i wonder if the woman figured out by now that she married a Jerk!

Once I figure out that someone is trying to game the system and they want my "tax advice", I am out of the game. I know how it will end when things don't go as planned.

Had a client who was taking care of her senile aunt and one year the 1099B was mind boggling. Poor aunt transferred all her investment portfolio to her and then got hit with cap gain taxes and wanted to figure out a way to bury that??

[mrichman333]

_{Agree with you totally Taxed.}

[mrichman333]

I do think the wife is figuring out her hubby is a Jerk and that is why she wanted to talk to me. At least the money will be in the wife's name and do believe she will use it for her mother's comfort and well being.

If he gets his hand on the money it will be new cars and vacations ......

[TAXMAN]

Hello to all this AM. Does anybody know for sure if Virginia has or does not have a look back law concerning prior gifts? Many thanks