turfing inheritance to children who will pay less capital gains tax?

Discussion in 'Tax' started by kalanamak, Dec 9, 2007.

  1. kalanamak

    kalanamak Guest

    Is there an IRS-accepted way to have money obtained from a sale of
    property left in a will go directly to the granddaughters of the
    (now-deceased) land owner. His will left a share to his son, who wants
    it to go to his grown daughters, who are in a lower tax bracket.

    Sister of son is buying out his share and putting the property in her
    name. We don't want to disclaim his share, as it will then be split with
    all the son's kids (not just grown daughters), and we don't trust sister
    to pay up without a scuffle, and we don't want to turf that burden onto
    the granddaughters.

    What about a contract for deed, where an escrow agent holds a quit claim
    deed from the son to his sister, but the agent mails the money directly
    to the granddaughters?
     
    kalanamak, Dec 9, 2007
    #1
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  2. kalanamak

    joetaxpayer Guest

    Re: turfing inheritance to children who will pay less capital gainstax?

    kalanamak wrote:

    > Is there an IRS-accepted way to have money obtained from a sale of
    > property left in a will go directly to the granddaughters of the
    > (now-deceased) land owner. His will left a share to his son, who wants
    > it to go to his grown daughters, who are in a lower tax bracket.
    >
    > Sister of son is buying out his share and putting the property in her
    > name. We don't want to disclaim his share, as it will then be split with
    > all the son's kids (not just grown daughters), and we don't trust sister
    > to pay up without a scuffle, and we don't want to turf that burden onto
    > the granddaughters.
    >
    > What about a contract for deed, where an escrow agent holds a quit claim
    > deed from the son to his sister, but the agent mails the money directly
    > to the granddaughters?


    The son can gift his children $12,000/yr with no gift tax consequence,
    or, he can use up part of his $1M lifetime unified credit. If he's
    married, the $12K doubles to $24K.

    The transaction is a gift the way you describe it.
    JOE
     
    joetaxpayer, Dec 9, 2007
    #2
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  3. kalanamak

    Phil Marti Guest

    "kalanamak" <> wrote:

    > Is there an IRS-accepted way to have money obtained from a sale of
    > property left in a will go directly to the granddaughters of the
    > (now-deceased) land owner. His will left a share to his son, who wants it
    > to go to his grown daughters, who are in a lower tax bracket.


    The basic answer is "no," but I'm having trouble seeing the problem, either
    with getting the money where he wants it or making sure Sisterwoman doesn't
    stiff him (from the unquoted part).

    Why is there concern about tax brackets? This is an inheritance, which is
    not taxable income. Why is there concern about the sister's actions? Isn't
    there an executor?

    A little clearer explanation of the situation, including some dates might
    help.
    --
    Phil Marti
    Clarksburg, MD
     
    Phil Marti, Dec 9, 2007
    #3
  4. kalanamak

    Guest

    Re: turfing inheritance to children who will pay less capital gainstax?

    On Dec 9, 2:41 am, kalanamak <> wrote:
    > Is there an IRS-accepted way to have money obtained from a sale of
    > property left in a will go directly to the granddaughters of the
    > (now-deceased) land owner. His will left a share to his son, who wants
    > it to go to his grown daughters, who are in a lower tax bracket.
    >
    > Sister of son is buying out his share and putting the property in her
    > name. We don't want to disclaim his share, as it will then be split with
    > all the son's kids (not just grown daughters), and we don't trust sister
    > to pay up without a scuffle, and we don't want to turf that burden onto
    > the granddaughters.
    >
    > What about a contract for deed, where an escrow agent holds a quit claim
    > deed from the son to his sister, but the agent mails the money directly
    > to the granddaughters?


    Inheritance is not taxable.

    Inheritance has a stepped up basis to the time that it was
    inherited... given that, where is the capital gain? Or at least, the
    capital gain isn't that huge.

    He can gift his grown daughters with $12,000 each annually without
    gift tax, $24,000 if he is married.
     
    , Dec 9, 2007
    #4
  5. kalanamak

    kalanamak Guest

    Re: turfing inheritance to children who will pay less capital gainstax?

    Phil Marti wrote:
    > "kalanamak" <> wrote:
    >
    >> Is there an IRS-accepted way to have money obtained from a sale of
    >> property left in a will go directly to the granddaughters of the
    >> (now-deceased) land owner. His will left a share to his son, who wants it
    >> to go to his grown daughters, who are in a lower tax bracket.

    >
    > The basic answer is "no," but I'm having trouble seeing the problem, either
    > with getting the money where he wants it or making sure Sisterwoman doesn't
    > stiff him (from the unquoted part).
    >
    > Why is there concern about tax brackets? This is an inheritance, which is
    > not taxable income. Why is there concern about the sister's actions? Isn't
    > there an executor?
    >
    > A little clearer explanation of the situation, including some dates might
    > help.


    Property owner died 9 years ago, but property still in his name.
    Property has doubled in value. 50% of what is coming will have capital
    gains.

    Executor is sister, who has broken more than one state law about her
    role as such. Some families are unwilling to go after a family member in
    court. Sister now wants property all in her name (assessed value is
    going up 24% for 2008) and wants to write IOUs (interest-free) for "five
    to ten years down the line". We want our money now. The posturing has begun.

    I file this under "inlaws".
     
    kalanamak, Dec 9, 2007
    #5
  6. Re: turfing inheritance to children who will pay less capital gainstax?

    kalanamak wrote:
    > Phil Marti wrote:
    >> "kalanamak" <> wrote:
    >>
    >>> Is there an IRS-accepted way to have money obtained from a sale of
    >>> property left in a will go directly to the granddaughters of the
    >>> (now-deceased) land owner. His will left a share to his son, who
    >>> wants it to go to his grown daughters, who are in a lower tax bracket.

    >>
    >> The basic answer is "no," but I'm having trouble seeing the problem,
    >> either with getting the money where he wants it or making sure
    >> Sisterwoman doesn't stiff him (from the unquoted part).
    >>
    >> Why is there concern about tax brackets? This is an inheritance,
    >> which is not taxable income. Why is there concern about the sister's
    >> actions? Isn't there an executor?
    >>
    >> A little clearer explanation of the situation, including some dates
    >> might help.

    >
    > Property owner died 9 years ago, but property still in his name.
    > Property has doubled in value. 50% of what is coming will have capital
    > gains.
    >
    > Executor is sister, who has broken more than one state law about her
    > role as such. Some families are unwilling to go after a family member in
    > court. Sister now wants property all in her name (assessed value is
    > going up 24% for 2008) and wants to write IOUs (interest-free) for "five
    > to ten years down the line". We want our money now. The posturing has
    > begun.
    >
    > I file this under "inlaws".


    The property may actually still be in his name, but it technically
    belongs to the Estate of (his name), and when sold will generate taxable
    income to the estate.

    At this point however, and in view of this added information regarding
    possible family dissension, you need to engage an attorney versed in
    estate matters.

    ChEAr$,
    Harlan Lunsford, EA n LA
     
    Harlan Lunsford, Dec 9, 2007
    #6
  7. kalanamak wrote:

    > Is there an IRS-accepted way to have money obtained from a sale of
    > property left in a will go directly to the granddaughters of the
    > (now-deceased) land owner. His will left a share to his son, who
    > wants it to go to his grown daughters, who are in a lower tax
    > bracket.


    Actually there is. It's called a qualified disclaimer. It's
    probably too late in your case, since it has to be done within nine
    months of when the original beneficiary inherits the property. Even
    if the property is still in the decedent's name nine years later,
    that doesn't extend the time.

    As a result, as someone else noted, the only other way to do it
    without tax consequences is for the son to give an interest worth
    $12,000 each year to his daughters. A yearly appraisal will be
    required to do that. If the son is married, he and his wife can file
    a gift tax return, elect to split the gift, and as a result give
    double the amount, as it is treated as coming half from each spouse.

    Or he could sell it to them now, and take back a note that called for
    annual payments of $12,000 (each) or less. The one drawback to this
    approach is that interest is required to be charged. So either the
    son will have to recognize taxable income in the amount of interest
    he could have but didn't receive, or the kids will have to recognize
    the interest as cancellation of debt income.

    > What about a contract for deed, where an escrow agent holds a quit
    > claim deed from the son to his sister, but the agent mails the
    > money directly to the granddaughters?


    How about just using a mortgage?

    Stu
     
    Stuart Bronstein, Dec 9, 2007
    #7
  8. kalanamak

    D. Stussy Guest

    "Stuart Bronstein" <> wrote in message
    news:Xns9A01961FD2A68avocatstuyahoofr@130.133.1.4...
    > kalanamak wrote:
    >
    > > Is there an IRS-accepted way to have money obtained from a sale of
    > > property left in a will go directly to the granddaughters of the
    > > (now-deceased) land owner. His will left a share to his son, who
    > > wants it to go to his grown daughters, who are in a lower tax
    > > bracket.

    >
    > Actually there is. It's called a qualified disclaimer. It's
    > probably too late in your case, since it has to be done within nine
    > months of when the original beneficiary inherits the property. Even
    > if the property is still in the decedent's name nine years later,
    > that doesn't extend the time.
    >
    > As a result, as someone else noted, the only other way to do it
    > without tax consequences is for the son to give an interest worth
    > $12,000 each year to his daughters. A yearly appraisal will be
    > required to do that. If the son is married, he and his wife can file
    > a gift tax return, elect to split the gift, and as a result give
    > double the amount, as it is treated as coming half from each spouse.
    >
    > Or he could sell it to them now, and take back a note that called for
    > annual payments of $12,000 (each) or less. The one drawback to this
    > approach is that interest is required to be charged. So either the
    > son will have to recognize taxable income in the amount of interest
    > he could have but didn't receive, or the kids will have to recognize
    > the interest as cancellation of debt income.
    >
    > > What about a contract for deed, where an escrow agent holds a quit
    > > claim deed from the son to his sister, but the agent mails the
    > > money directly to the granddaughters?

    >
    > How about just using a mortgage?


    OK, but won't that raise a GST issue? (I don't deal with GST issues and
    refer them out.)
     
    D. Stussy, Dec 10, 2007
    #8
  9. D. Stussy wrote:
    > "Stuart Bronstein" <> wrote
    >> kalanamak wrote:


    >> > What about a contract for deed, where an escrow agent holds a
    >> > quit claim deed from the son to his sister, but the agent mails
    >> > the money directly to the granddaughters?

    >>
    >> How about just using a mortgage?

    >
    > OK, but won't that raise a GST issue? (I don't deal with GST
    > issues and refer them out.)


    I don't think so. First of all if there were enough money to justify
    worrying about the GST, they should spend the money to hire a tax
    lawyer to figure it out.

    But the GST deals with gifts. I was proposing that, if he didn't
    qualify for a qualified disclaimer (which would implicate the GST) the
    son should sell the property to his children, and forgive the loan
    payments each year. If the father sells it to the children, taking
    back a mortgage to be sure the transaction goes the way it is supposed
    to, it shouldn't be considered a gift.

    Stu
     
    Stuart Bronstein, Dec 10, 2007
    #9
  10. kalanamak

    Una Guest

    If the mortgage involves below market interest, the foregone interest
    counts as a gift. Whether or not there is gift tax depends on the total
    amount of gift money.

    Una
     
    Una, Dec 10, 2007
    #10
  11. kalanamak

    kastnna Guest

    Re: turfing inheritance to children who will pay less capital gainstax?

    On Dec 9, 10:46 am, kalanamak <> wrote:

    > Property owner died 9 years ago, but property still in his name.
    > Property has doubled in value. 50% of what is coming will have capital
    > gains.


    If I am reading the original post correctly, the primary reason for
    transferring the inheritance to the grown granddaughters was to pay
    less in taxes. But will you really? We are talking capital gains, not
    OIT. Do the granddaughters have so little income they qualify for the
    5% rate? If so, how much of the gain will be at 5% and how much will
    be bumped up to 15% (IOW, is it worth the trouble)?

    > Executor is sister, who has broken more than one state law about her
    > role as such. Some families are unwilling to go after a family member in
    > court. Sister now wants property all in her name (assessed value is
    > going up 24% for 2008) and wants to write IOUs (interest-free) for "five
    > to ten years down the line". We want our money now. The posturing has begun.


    All the good adivce in the world is limited in usefulness if the other
    party isn't playing by the same set of rules. Your account of the
    executor's past actions suggest she doesn't care what is right and
    wrong. If she's going to do what she wants anyway, what does it matter
    what the law says? Unless your son is willing to get screwed in the
    name of "keeping the peace", I would suggest he run immediately to a
    lawyer.
     
    kastnna, Dec 10, 2007
    #11
  12. kalanamak

    Una Guest

    Re: turfing inheritance to children who will pay less capital gainstax?

    Wouldn't any capital gains accrued before the estate settles be taxed in
    the estate? Ie, not capital gains to any beneficiaries of the estate?

    It sounds like the family is going to have to go to court, or allow the
    executor (sister) to continue holding the estate hostage, extorting its
    assets from the rest of the family.

    Una
     
    Una, Dec 10, 2007
    #12
  13. Re: turfing inheritance to children who will pay less capital gains tax?

    Una wrote:

    > Wouldn't any capital gains accrued before the estate settles be
    > taxed in the estate? Ie, not capital gains to any beneficiaries
    > of the estate?


    Not in this case. The basis of inherited property is increased to the
    value at the donor's date of death. In this case he apparently died
    nine years ago, so the increase in value over the last nine years would
    be taxable capital gain.

    > It sounds like the family is going to have to go to court, or
    > allow the executor (sister) to continue holding the estate
    > hostage, extorting its assets from the rest of the family.


    That happens sometimes. Money is thicker than blood.

    Stu
     
    Stuart Bronstein, Dec 10, 2007
    #13
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