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I think Bette's note that total assets are under $650K make tax avoidance less of an issue. I believe the estate tax exemption, even after it reverts to 2002 levels after this year, is above that level. So from an estate tax standpoint, there's no real impact or benefit. (This assumes the donor has not used any of his/her lifetime exemption which gets factored into the estate exemption. If the donor has, get a tax attorney/CPA to do the math.)
However, the question arises if the recipient or the potential donor have more need/use of the money at this point. If the donor, then he/she should keep the money and not worry about the estate tax. If the recipients have need (and really need, not want), then go ahead and make the gift. But there's no need to do so from purely a tax standpoint.
Mike,
Thank you for your response. The donor does not need the money to live on and actually lives on about 15% of what he receives. He is very frugal and has always been that way.
Since I am probably going to be the one asking him, I wanted an impartial view. My husband could really use his help right now and is hesitant to ask.
I have detailed this in other forums but he is an only child. We both are active in his dad's life and are always concerned for his well being. We are not the type with our hands out, in fact, it's been the other way around in the past.
We need it for business reasons - we need to ramp up the business and need the funds to do it. We have been wrestling with this for months.
Your father-in-law could actually give $26,000 (a separate $13,000 gift to each of you), if he were so inclined. The law sets a gift limit from an individual to an individual, not from a household to a household. If he is hesitant to do the gift, you could arrange the business as a form of partnership, with him being an equity partner. You could talk to an attorney and have it structured so that his interest is liquidated upon his death (or it could go to the estate, which presumably has your husband/you as sole or at least primary beneficiary). That can get much more complicated, but you could research some options as a plan B if your father-in-law is reluctant to give the money outright.
Your father-in-law could actually give $26,000 (a separate $13,000 gift to each of you),
I haven't looked at the rules in a few years but couldn't he actually do that PLUS another $13,000 to them jointly? Or was I misunderstanding the rules (at the time I last looked)?
I haven't looked at the rules in a few years but couldn't he actually do that PLUS another $13,000 to them jointly? Or was I misunderstanding the rules (at the time I last looked)?
golfgod
If his wife is alive, both he and his wife could give Bette and her husband $13,000 each ($52,000 total annually). The gift rules do not allow $13k to Bette, $13K to Bette's husband, and then $13k to Bette & husband combined as a unit from a single individual.
Where you can run into Bette, her husband, and joint Bette/husband distinctions are in FDIC insurance limits for bank accounts. There, Bette having a $250k, her husband having a $250k, and a joint account of $250k at a single institution would allow triple the standard insurance amounts. That's a vary different matter, but the only one I could think of right away when the husband and wife combo would be considered a distinct unit.
Now, Bette's father could give more than $13,000 to each of them. However, if he did so, he would have to report this "excess" on his taxes, which would then get applied to the lifetime maximum exemption a person receives, which then gets rolled into the estate tax exemption. Of course, then the estate would have to make sure to account for this reduced exemption amount and it gets messy. You would definitely want an accountant for this. But my point is the father could give $20k to both Bette and her husband and not have to pay transfer taxes on the amount over $13,000. (As a side, gift taxes are only to the donor, not to the recipient. Bette could receive $1,000,000 from a generous friend, and as long as it is a true gift, as opposed to hidden income, owe no tax on it. The friend, however, would have to report the excess gift amount.)
Mike,
Yes, my FIL is a widower. This is one of the strategies that I have suggested and I have also suggested the business interest.
This is just due to the SBA not lending right now even though we are qualified and I am sure most small businesses are feeling the same pain.
This is kind of a last resort type thing for us. We actually hate to even consider it but I can see my husband as being very stressed and I am trying to be proactive.
You might even think about his "lending" a certain amount to the company at a low interest rate. You could then pay him a monthly or semi-annual interest payment, if you think that this amount would make the deal more desirable for everyone. If you do go that route, get a contract drawn up, the interest to be on the unpaid balance due at the time of payment.
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Thank you...
