Q:

Subject: Question

My Mom wants to gift me and my brother $100,000 each.  Her entire estate is worth approximately $300,000. 

Question:  Can she do this with paying a gift tax ? 

Question:  Will we have to pay any taxes.

Question:  I assume the 5 year time period will have to pass before this money is considered no longer her asset??

Thank you,

A:

It sounds as if your mom is trying to do some impoverishment planning to qualify for Medicaid and/or other programs that penalize people with too much net worth.  This is an actual specialty with some attorneys and financial planners, so she really needs to work out such a strategy with a professional experienced in this area, including the specific look-back rules for her state.

She also needs to consult with a qualified professional tax advisor who can explain the mechanics of making such large gifts in regard to gift tax returns and how this will affect her future exclusion from estate taxes. 

In regard to you and your brother, there will be no taxes required on the receipt of the gifts.  What you do with the gifts could create tax issues, that you and your brother need to discuss with your own professional tax advisors. 

If those gifts are made via money, documenting the transactions will be simple.  If you are being transferred assets, such as real estate, you will need to determine your mom's cost basis in those assets, because that will now become your costs basis in the event of a future sale of those items.  A good tax advisor can help with this.

While you are not required to report the receipt of gifts on your income tax returns, you may want to attach a note to your return describing the gift, especially if you use some of the money in ways that show up as large deductions on your tax returns, such as donations or business expenses.  Without an explanation of the tax free source of the funds, IRS could suspect you of under-reporting taxable income and launch an excruciating examination of all of your finances.  I have seen its happen, so t's not mere alarmist fantasy.

I have some basic info on Gift Taxes on my website, which you should look over before meeting with a professional tax advisor.

Good luck.  I hope this helps. 

Kerry Kerstetter

Follow-Up:

Kerry,

Thank you so much for your response.  I just wanted to make sure we were not doing anything illegal.  We will take your advise and contact a

professional.

Kind regards,

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/16/2007 02:44:00 PM Send this post: