Best way to receive a windfall

What is the name of your state? Virginia

Hello,
I am seeking advice of the best way to receive a $500,000 windfall. Here's the situation:

My father is selling the company business. All stock in the corportation is owned 50-50 by he and my mother. After the sale is complete, I will be receiving the above amount, either from him, or the company.

Since I will no longer be employed, what is the best way for him to "bonus" me this money, to reduce the taxes? My accountant is estimating take home will be around $267,000.00 after taxes, which is alot lower than what I expected. (My yearly tax bracket is currently based on $110,000.00 income per year. )

The following ways have been suggested to me, as a way to "get the money to me", and reduce my tax burden:

1 - Have my father set up two college fund accounts from the new educational law that came into effect last year for my children, with $100,000 each, which would go in, tax free. After their college is paid for (their currently 8 and 10 yrs old), which I would have to do anyway, I can then withdrawal or keep the overage, for retirement, and there is no tax fee. I could just roll it into another investment (? - correct?).

2 - After the above $200,000 has "gotten to us", have my parents gift, me, my wife, and two children, $21,000 each. That removes another $84,000, that just goes in our bank account, then transferred to a money market, or mutual fund.

That brings me down to a taxable income amount received of $216,000.00 left, which would reduce my taxes. Is there anything else that can be done to lower this amount?

Other than an initial $40,000 needed right away from the total $500,000, the rest ($460,000) was meant to be put away for retirement, since my 401K is very low. With that said, can anyone think of a legal way, I can get this $500,000, to me and my wife, with very little tax?
Thanks!
Bob

[abezon]

Have mom & dad collect the money themselves, then gift you & your wife the $500,000 directly. You aren't getting the money because of your employment; you're getting it because of your relationship, so there should be no employment taxes. Gifts aren't taxable to the recipient, so you pay no taxes.

He can gift $55,000 to each child via a 529 plan (talk to financial advisor about which plans to use & who controls the money when the kids turn 18 and who gets to keep any extra funds). Your mother can also gift $55,000 to each child in a 529 plan. That would cover the first $220,000. They can gift the rest to you & your wife directly: $44,000 exempt with the rest reducing their uniform estate & gift tax credits. They would pay no actual gift taxes, just file a Form 706.

Alternatively, they can each gift $11,000 to each member of the family (4 family members = $88,000 total gift) each year until the $500,000 is all gone in 6 years. He should discuss the uniform transfer to minors act with a financial advisor before doing this to see how you can use the money 'given' to the kids.

If you want to get really complicated, they can set up a limited partnership that owns stocks & real property & gift you shares in the p'ship. Since stocks are easy to value but real property is not, they can give you $12,000-$15,000 of assets by giving you $11,000 in shares. Definitely see a sophistocated estate planner for this.

Was this helpful?

Hello,
Thank you very much for the response.

So basically you're saying, they can gift the money, but over an extended amount of time? I was hoping there was another way, to get it ALL, so I could invest as much as possible up front.
Thanks!
Bob

[abezon]

The first thing I said was they can just give you the whole $500,000. They file a Form 706 but pay no actual taxes unless they've given out significant gifts in the past (like, a million bucks).

OK......I think I got confused with the rest of the details. So you're saying, they they can gift the total, writing a check to me and my wife, with no taxes ON THEIR END**************after that**************

The $220k to each child coming from both of them.....then the initial gift to all four of us, then the residual coming over the next 5-6 years?
Thanks,
Bob

[abezon]

Each paragraph is a separate gifting scheme. Pick one.