If not Gift Tax, then what?

[3junebugs]

What is the name of your state (only U.S. law)? PA

My FIL is set to receive a large settlement for a personal injury claim that will be over 7 figures. He wants to give my husband and I a considerable amount to pay off debts (houses, cars, credit card etc) along with buy us a new house and to have money in the bank. Hubby and I read up on Gift Taxes and quickly realized that its not going to fall under that

What would be the most tax beneficial option (for us, not the IRS ) to minimize the tax bill? Would it be better for my FIL to pay off the debts for us? Purchase the new things under his name? Would it work out better if we lived with him? Or are all these things irrelevant?

Another aspect is that my FIL wants to start a Property Management business with my husband as a partner. Would he be able to 'give' him the monies through the business via salary?

Thanks in advance!

 

[davew128]

A gift by any other name is still a gift. If you want to minimize it through strategies, hire an estate tax planner.

 

[3junebugs]

A gift by any other name is still a gift. If you want to minimize it through strategies, hire an estate tax planner.

I thought estate planning was for when you die. He wants us to have the money while he is still living

 

[LdiJ]

What is the name of your state (only U.S. law)? PA

My FIL is set to receive a large settlement for a personal injury claim that will be over 7 figures. He wants to give my husband and I a considerable amount to pay off debts (houses, cars, credit card etc) along with buy us a new house and to have money in the bank. Hubby and I read up on Gift Taxes and quickly realized that its not going to fall under that

What would be the most tax beneficial option (for us, not the IRS ) to minimize the tax bill? Would it be better for my FIL to pay off the debts for us? Purchase the new things under his name? Would it work out better if we lived with him? Or are all these things irrelevant?

Another aspect is that my FIL wants to start a Property Management business with my husband as a partner. Would he be able to 'give' him the monies through the business via salary?

Thanks in advance!

It would indeed be a gift...and it would indeed require your FIL to file a gift tax return.

However, your FIL could pay any outstanding medical bills for you directly without it being a gift. So if any of the debt is medical bills, then paying those directly would avoid any gift tax issues.

Your father in law (and his wife if he is married) can also give each of you 13,000 a year in gifts without triggering the gift tax. That means each of them can give each of you 13,000, which would add up to 52,000 for one year. If you have children they can also each gift each of your children 13,000.

Your FIL could also buy a house in his name and sell it to you on contract. However he would have to charge you interest on the loan and report that interest on his taxes.

These are the kinds of things that an estate planner can help with now, even though your father in law is not deceased.

Your father in law should also see a tax professional before he starts spending the money, to ensure that none of it is taxable. With those kinds of settlements there is often a taxable portion.

 

[ShyCat]

Besides the Federal gift tax limits mentioned by LdiJ, your FIL should also be aware that Pennsylvania has its own gift tax limits. I don't know if medical expense payments are excluded by PA, so your FIL would also have to find that out.

One of the reasons so many lottery jackpot winners get into so much trouble is they don't realize the gift tax implications of being so generous to their friends and families. Give away $$$$ and then get hit with an unexpected gift tax bill of $$$, ouch.

 

[anteater]

Besides the Federal gift tax limits mentioned by LdiJ, your FIL should also be aware that Pennsylvania has its own gift tax limits.

Pennsylvania does?

 

[davew128]

Pennsylvania does?

Yeah, kinda had me scratching my head too.

 

[anteater]

Yeah, kinda had me scratching my head too.

The only related thing I could think of... Gifts made within one year of death would be subject to the PA Inheritance Tax.

 

[ShyCat]

My bad, you're right, there's no PA gift tax. I misremembered which states imposed their own gift tax (there are six of them, including mine) and didn't double-check myself. Sorry about that.

 

[3junebugs]

Would a trust be less of a tax hit?

 

[LdiJ]

Would a trust be less of a tax hit?

Not necessarily. Your father needs a consult with professionals. There is too much money involved for a third party to be getting advice for him from an internet message forum.