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Gift Tax question for newbie


NECPA in NEBRASKA

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I hate this year! I got a call this am asking me to prepare a gift tax return, because an Pro Bono attorney said that they should find a CPA to fill it out. The father just passed away and they expect the mother may soon. They are trying to avoid huge medical debts and mortgages taking the house by gifting the house to the son and sife. #1 I have never prepared a gift tax return and #2, I don't want the creditors after my insurance. I did call my insurance company and they said that they could not tell me not to prepare it because there may be liabiltiy, but said that I could use them as an excuse. It's a non-client relative, so I feel guilty. It does not seem ethical to me to try to avoid the creditors, but maybe I am just too strict. Does anyone know if this is a normal thing to do? I wish the attorney would just take care of it.

Thanks! 

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I don't know about 'normal' but understand your feeling.  I just completed the return for a client who sold off all her stock and withdrew all her IRA funds, etc. to become eligible for Medicaid.  The cash went to the daughter and son, of course.  But the client died in March unexpectedly and now the estate owes several thousand dollars.  Daughter and attorney of course state that there is no money in the estate to pay the tax.  I know its legal but.....

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You can't avoid mortgages by gifting property. plus the medicaid lookback period in most states is 60 months.

"All asset transfers within the timeframe of the look-back period are reviewed, and if an applicant is found to have violated this rule, a penalty period (a period of Medicaid ineligibility) will be established. This is because had the assets not been gifted, sold under their fair market value, or transferred, they could have been used to pay for the elderly individual’s long-term care. If one gifts or transfers assets prior to this look-back period, there is no penalization.

The date of one’s Medicaid application is the date from which one’s look-back period begins. In 49 states and D.C, the look back period is 60 months. In California, the look back period is 30 months. New York will also be implementing a 30-month look-back period for their Community Medicaid program, which provides long-term home and community based services. (At the time of this writing, NY has a 60-month look-back for nursing home Medicaid, but no look-back for Community Medicaid). As an example of the look back period, if a Florida resident applies for Medicaid on Jan. 1, 2021, their look-back period extends back 60 months to Dec. 31, 2015. All financial transactions during that timeframe will be subject to review."

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You need to insist that they go to an attorney specializing in elder law. I wouldn't touch this for $ 10,000.

I know it's common practice for law firms in my area to ask CPA Firms for bids to prepare gift, estate and trust returns in situations like this.

If the attorney wants to engage you then fine, but don't put yourself on the line when it's not your area of expertise,

because inevitably down the road they are going say but the CPA said . . . . . . . . . 

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4 hours ago, cbslee said:

You need to insist that they go to an attorney specializing in elder law. I wouldn't touch this for $ 10,000.

I know it's common practice for law firms in my area to ask CPA Firms for bids to prepare gift, estate and trust returns in situations like this.

If the attorney wants to engage you then fine, but don't put yourself on the line when it's not your area of expertise,

because inevitably down the road they are going say but the CPA said . . . . . . . . . 

Thank you! I was stunned to have this call wake me up this morning. The attorney doesn't want to touch it either. He is giving advice as a "favor". Mainly to throw me under the bus. The medical bills are old and very large. I can't imagine that they won't pursue them. I am going to tell them that they need an elder care attorney and that's not me. 

I feel better about my decision. 

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12 hours ago, NECPA in NEBRASKA said:

Thank you! I was stunned to have this call wake me up this morning. The attorney doesn't want to touch it either. He is giving advice as a "favor". Mainly to throw me under the bus. The medical bills are old and very large. I can't imagine that they won't pursue them. I am going to tell them that they need an elder care attorney and that's not me. 

I feel better about my decision. 

I have NEVER regretted turning a client away.  But I have, many times, regretted NOT doing so.  Run!

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On 5/10/2021 at 11:28 PM, NECPA in NEBRASKA said:

Thank you! I was stunned to have this call wake me up this morning. The attorney doesn't want to touch it either. He is giving advice as a "favor". Mainly to throw me under the bus. The medical bills are old and very large. I can't imagine that they won't pursue them. I am going to tell them that they need an elder care attorney and that's not me. 

I feel better about my decision. 

A gift tax return is not that hard to prepare.    At some point you should take one on.   Date of the gift, description of the gift, value of the gift and the donee.  Pretty darn simple. 

As to the potential client in question, your choice, and I think you made a good one.   But I would not be too concerned about the creditors.   You prepare the returns based on the information provided.   You are not an auditor the the IRS, nor the creditors.   If a person completes a gift, whatever their motive, there is still a tax return to be prepared and filed.   

Tom
Modesto, CA

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3 hours ago, BulldogTom said:

A gift tax return is not that hard to prepare.    At some point you should take one on.   Date of the gift, description of the gift, value of the gift and the donee.  Pretty darn simple. 

As to the potential client in question, your choice, and I think you made a good one.   But I would not be too concerned about the creditors.   You prepare the returns based on the information provided.   You are not an auditor the the IRS, nor the creditors.   If a person completes a gift, whatever their motive, there is still a tax return to be prepared and filed.   

Tom
Modesto, CA

If I weren't winding down my practice or it was just cash, I might not be worried.  After 42 tax seasons, I am thinking very seriously about getting out sooner than my previous plan of 70. We lost my mom and my husband's brother already this year. My husband's COPD is much worse after having Covid and I need to do more around the house than ever now. Life is too short and I think that I would like to enjoy the first several months in the year for a change. Once I hit full retirement age in a couple of years, I might just find something else to do that is not so stressful. My sister is a mess mentally and it is taking at least two hours every day to talk to her and calm her down. I can't wait until she gets another cat scan to see if her brain tumor is coming back. I still love my clients, but this year has been hard on them because I have had so many personal issues. 

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On 5/10/2021 at 6:10 PM, Pacun said:

all gifts in the past 2 years are reconsidered and put back as income to the decedent or something like that. 

Section 2035(a) transfers made within 3 years of DOD are included in the gross estate of decedent.

Section 2035(a) transfers are gifts where the grantor retains a degree of control.

That does not include bonified gifts.

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On 5/10/2021 at 3:27 PM, NECPA in NEBRASKA said:

Does anyone know if this is a normal thing to do?

Sounds like they are getting the cart ahead of the horse.

In order to file a gift return, you need legal documentation that the assets have been unconditionally transferred to the donee.

Once you have received copies of the deed...etc., there is no ethical barrier to prevent you from preparing the 709 in this case.

The client is rolling the dice against the Medicare look back period, as long as you have properly prepared the return you do not have any exposure.

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10 hours ago, DANRVAN said:

Sounds like they are getting the cart ahead of the horse.

In order to file a gift return, you need legal documentation that the assets have been unconditionally transferred to the donee.

Once you have received copies of the deed...etc., there is no ethical barrier to prevent you from preparing the 709 in this case.

The client is rolling the dice against the Medicare look back period, as long as you have properly prepared the return you do not have any exposure.

I don't know what the freebie attorney was going to do. They were having trouble getting the title free and clear of the debts. The attorney wanted me to prepare the gift tax return and take the kids' value. It was an insane valuation. I am just glad to be out of it.

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