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Originally Posted by JCX5
I know there are some accountants out there - and maybe a lawyer or two...
I'm in NJ - so is my mother. She is starting to think about transferring assets to her children to avoid us having to pay inheritance tax 'when that time comes'. So - couple of questions.
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Hi, there - I'm a CFP(tm) by profession, so I'll type what I can here, but if you want to talk about this more, lemme know!
The essence of what your trying to accomplish is reducing your mom's estate through gifting so that upon her death the "shrinkage" of her assets will be minimal because of taxes, administrative expenses and other liabilities.
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Originally Posted by JCX5
1) is every inheritance dollar taxed - or only over a certain limit? Is it based on the value of the estate - or amount given to each child?
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Generally speaking, if your estate is over $1.5MM, there will probably be tax due upon your death (federal and state and income tax). The question you need to ask while adding everyting up is what does she owe, what does she own, and has she made gifts in the past.
Gifting rules aren't the easiest. Everyone has the ability to give up to $1MM during your lifetime (Lifetime Gift Exclusion). Everyone also has the ability to make annual gifts of $11,000 per year without paying gift taxes. If you give the $1MM during your lifetime, you lose most of the $1.5 MM exclusion at death. I know that doesn't make sense, but that's the deal.
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Originally Posted by JCX5
2) what is that percentage?
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The gift tax is about 50% of the value of the taxable gift. If she gives something worth $75,000 to you and 3 siblings, she will have made a taxable gift of $31,000. ($75,000 - (4 x 11,000)). She'd pay an additional $15,500 or so in taxes when she made the gift. She could allocate that $31,000 towards her lifetime exclusion, but that would reduce the credits at death.
This is fun isn't it??
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Originally Posted by JCX5
3) is it generally a wise thing to tranfer ownership of her primary household - or keep it in her name?
TIA
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Here's where you can get in trouble. Any gift has to be for the fair market price of the asset. If your parents transfer the deed to you and your siblings, and only value the gift for $300,000 and the house is really worth $500,000 - you've made a gift in violation of the tax code (gimme a few minutes and I'll quote the code citation :p ).
Also, if your mom gifts the house, but still lives in it, she is required to pay you rent for her right to live there. If she doesn't - it's not a complete gift and it won't count to reduce her estate.
I've opened a can of worms for you, so let me know how to clarify and expound!!
Also - get counsel immediately. You'll need someone to do all these things for you, and back you up with your decisions.
Disclaiimer - this is general advice, not specific recommendations!!!