Minimizing taxes when transferring money between parents and adult children

[Anonymous]

My parents have plenty of money and have already given me the maximum gift amount not subject to tax this year ($14,000) but want to give me more money to help out because I am going through divorce which is straining my finances. Would it be a good idea to suggest that they write a check directly to the divorce lawyer on my behalf for the next retainer, or to my landlord? How about if they were to write checks to their young grandchildren and then I transfer those amounts over to my account to use for expenses like that?

Or can they ask for a potion (or all, if it can't be apportioned) of their pending condo sale be made out to me? Could that benefit them with their taxes as well, if the condo appreciated in value a lot while they owned it?

I would be grateful for any suggestions.

[Anonymous]

Yes they can write a check to the grandchild. In fact, each grandparent can write a 14k check.

That being said, unless your parents are extremely wealthy there is no reason to worry about the 14k limit. Here is some info on the gift tax. Basically your parents would only have to pay tax on money they have given once they have given away over $5 million.

https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html

[Anonymous]

They can each max the max gift amount. Also, they can very likely give more unless they are so wealthy that the estate tax will be an issue when they die. TMy understanding is that they could pay certain expenses directly such as medical or educational w/o issue but I don't think an attorney counts. I'm sure people do it though anyway.

[Anonymous]

Them paying your lawyer is a transfer to you as surely as them giving the money to you directly.

But pp is right that unless they are very wealthy you don't need to worry about this much. They can just file the gift amount, it won't be taxed. If we are talking about amounts over $5 million then you should get professional advice.

[Anonymous]

Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

[Anonymous]

Anonymous wrote:Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

You were a dependent when these tuition payments were made. Besides the fact I'm sure if your parents have an 11mm estate they have it figured out.

[Anonymous]

I think tuition costs are exempt (although technically I think they should pay the school directly)

[Anonymous]

No free advice for someone inheriting 11 million!

[Anonymous]

Anonymous wrote:Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

Oh, no! You may have to pay some taxes on your $11 million inheritance? Whatever will you do?! You'd better stop buying Starbucks now, OP, just to plan for it.

[Anonymous]

Each individual grandparent can gift $14 to each individual in your family. If you are married, each grandparent can gift $14 to you, to your spouse and your child. So, they can gift up to $84K per year to your nuclear family of 3. They can gift up to $112K if you have 2 children.

Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

You were a dependent when these tuition payments were made. Besides the fact I'm sure if your parents have an 11mm estate they have it figured out.

Yes, in this case you were a dependent. Your children qualify as dependents until age 19 if not a full-time student, to age 24 if a full-time student. Any tuition, expenses, gifts paid after the child passes those ages will be included. This is the IRS definition for dependency:

https://www.irs.gov/publications/p17/ch03.html
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

[Anonymous]

Each individual grandparent can gift $14 to each individual in your family. If you are married, each grandparent can gift $14 to you, to your spouse and your child. So, they can gift up to $84K per year to your nuclear family of 3. They can gift up to $112K if you have 2 children.

Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

You were a dependent when these tuition payments were made. Besides the fact I'm sure if your parents have an 11mm estate they have it figured out.

Yes, in this case you were a dependent. Your children qualify as dependents until age 19 if not a full-time student, to age 24 if a full-time student. Any tuition, expenses, gifts paid after the child passes those ages will be included. This is the IRS definition for dependency:

https://www.irs.gov/publications/p17/ch03.html
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

CORRECTION:

IRS Gift Tax FAQ wrote:
What can be excluded from gifts?

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

Gifts that are not more than the annual exclusion for the calendar year.

Tuition or medical expenses you pay for someone (the educational and medical exclusions).

Gifts to your spouse.

Gifts to a political organization for its use.

[Anonymous]

Anonymous wrote:Each individual grandparent can gift $14 to each individual in your family. If you are married, each grandparent can gift $14 to you, to your spouse and your child. So, they can gift up to $84K per year to your nuclear family of 3. They can gift up to $112K if you have 2 children.

Wait...so when I was younger and my parents paid for private school, college and my masters...all those tuition costs will later be added up and count against the 5.45M estate tax exemption (11M couple) when my parents pass on? They've got a bunch of real estate and I think it'll be above the 11M threshold. Or are tuition costs exempt?

You were a dependent when these tuition payments were made. Besides the fact I'm sure if your parents have an 11mm estate they have it figured out.

Yes, in this case you were a dependent. Your children qualify as dependents until age 19 if not a full-time student, to age 24 if a full-time student. Any tuition, expenses, gifts paid after the child passes those ages will be included. This is the IRS definition for dependency:

https://www.irs.gov/publications/p17/ch03.html
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

This is misleading. The gifter can give anything they want to your family. However, the gift will have to pay taxes if the amount given away over their lifetime is greater than 5.4 million.

[Anonymous]

5.4 mil?

This is clearly something I don't have to worry about.

[Anonymous]

Anonymous wrote:5.4 mil?

This is clearly something I don't have to worry about.

Most people don't. That's why it's strange that so many average Americans concern themselves with the gift tax limit. They are simply uninformed. First off, the person or estate providing the gift is the one on the hook for taxes after 5.4 million. Not the receiver of the gift. So it's strange so many people post here worried about the 14k and how can they receive more?

Keep in mind 5.4 million is after all that money spent on elder care, nursing homes etc. you have to have a huge estate to be giving away over 5.4 million over your lifetime. I'm guessing there's probably an exclusion for primary residence too. Already tuition payments are excluded.

[Anonymous]

No exclusion for primary residence.