Questions Regarding Tax Rules for Gift Giving

[BuckeyeMark]

Hi everyone,

I'm hoping someone that knows "the rules" can help me out here.

Situation: My parents would like to begin giving away their assets with a goal of moving about $200,000 in the next two years, with an eye on the Medicaid Lookback period. I understand that for 2019 they each can give $15,000, so effectively they can give $30,000 to each person they choose to give money to. Their candidates for gifts are 1. Me (decided) 2. Two grandchildren (my children) nearing 18 years old (concerns due to age), and 3. My longtime girlfriend (concerns since we aren't married).

The main issue is that neither my parents or I want such large sums of my money to be controlled by my kids when they reach age 18.

Question 1: Can my parents gift the money to my kids and then later in the year or even the following year, my kids in turn gift the money to me without issues with the IRS? Please, ignore the potential issue that the kids would actually do it - only concerned about laws/rules.

Question 2: Essentially the same question, but for my girlfriend. Can she "re-gift" the money to me? Only asking in case laws / IRS rules are different for adults vs minors or legally related vs legally unrelated people.

Thanks in advance if someone can answer this. Also, if there's a better plan than gifting (again with an eye on avoiding issues with the Medicaid lookback period if either parent eventually needs to apply), other advice is welcome. Finally, if this is your line of work and you are in the Columbus, Ohio area feel free to let me know your contact information.

Thanks!
Mark

 

[Zigner]

I'll start with #2: Once she's got the money, she can do whatever she wants with it.

Now, for #1: If your parents gift the money to your kids, then why should they give it to you? Your parents would be better off setting up some sort of trust for them so that they get the money later in life.

 

[BuckeyeMark]

Thanks Zigner. Was trying to keep it concise, but the idea was that if the parents, who are in their late 70s remain healthy they might like some money back to enjoy retirement. In theory that would be easier to get from me (the well off, middle aged guy that plans to essentially just park their money for the rest of their days) compared to two kids that may decide they just landed enough money to (fill in the blank) instead of holding it.

 

[Zigner]

Thanks Zigner. Was trying to keep it concise, but the idea was that if the parents, who are in their late 70s remain healthy they might like some money back to enjoy retirement. In theory that would be easier to get from me (the well off, middle aged guy that plans to essentially just park their money for the rest of their days) compared to two kids that may decide they just landed enough money to (fill in the blank) instead of holding it.

In other words - these aren't gifts - they're just ways to attempt to fraudulently shelter money.

 

[PayrollHRGuy]

You should be aware that there is a $15K annual exemption that simply means it has to be reported to the IRS. It isn't taxed until one exceeds the lifetime maximum which is $5 Million +.

 

[BuckeyeMark]

Thanks again Zigler - That was bluntly stated, but the reason I was asking is to avoid doing anything that would be viewed as fraud. Also, there is another reason the family would like an adult to hold the money vs having kids hold it. What if the parents' health declines and they need medicare within the 5 year lookback period, and are declared ineligible, but the previously given gift making them ineligible has been spent and is gone?

Thanks to you too PayrollGuy - no threat of hitting the lifetime limit here...

 

[LdiJ]

Hi everyone,

I'm hoping someone that knows "the rules" can help me out here.

Situation: My parents would like to begin giving away their assets with a goal of moving about $200,000 in the next two years, with an eye on the Medicaid Lookback period. I understand that for 2019 they each can give $15,000, so effectively they can give $30,000 to each person they choose to give money to. Their candidates for gifts are 1. Me (decided) 2. Two grandchildren (my children) nearing 18 years old (concerns due to age), and 3. My longtime girlfriend (concerns since we aren't married).

The main issue is that neither my parents or I want such large sums of my money to be controlled by my kids when they reach age 18.

Question 1: Can my parents gift the money to my kids and then later in the year or even the following year, my kids in turn gift the money to me without issues with the IRS? Please, ignore the potential issue that the kids would actually do it - only concerned about laws/rules.

Question 2: Essentially the same question, but for my girlfriend. Can she "re-gift" the money to me? Only asking in case laws / IRS rules are different for adults vs minors or legally related vs legally unrelated people.

Thanks in advance if someone can answer this. Also, if there's a better plan than gifting (again with an eye on avoiding issues with the Medicaid lookback period if either parent eventually needs to apply), other advice is welcome. Finally, if this is your line of work and you are in the Columbus, Ohio area feel free to let me know your contact information.

Thanks!
Mark

Why don't you just let your parents keeps their money so that if they need nursing home care, they can have more comfortable nursing home care than Medicaid supplies? You don't get much in the way of comfortable for what Medicaid pays for.

Gifting money to your children or your girlfriend would be an extremely foolish thing to do.

 

[BuckeyeMark]

LdiJ - I actually like your idea. However, my father grew up without much in a material sense, and lived a very frugal life with the goal hand down whatever wealth he would accumulate. I'd say it was to some extent a driving life goal of his. Trying to help him strike some balance here. I think he's going to need to go to an estate planner soon, but trying to answer some of his questions in advance. Thanks.

 

[LdiJ]

LdiJ - I actually like your idea. However, my father grew up without much in a material sense, and lived a very frugal life with the goal hand down whatever wealth he would accumulate. I'd say it was to some extent a driving life goal of his. Trying to help him strike some balance here. I think he's going to need to go to an estate planner soon, but trying to answer some of his questions in advance. Thanks.

Send him to an estate planner now rather than later. Again, to even contemplate gifting your children or girlfriend money is not in anyone's best interest.

 

[FlyingRon]

Actually, the lifetime exclusion is up to $11.4MM for singles, $22.8MM for married couples.

 

[PayrollHRGuy]

Wow. That really jumped up. I'm pretty sure it was around the $5mil mark not long ago. But $11.44mil is technically $5 Million +

 

[Taxing Matters]

Question 1: Can my parents gift the money to my kids and then later in the year or even the following year, my kids in turn gift the money to me without issues with the IRS? Please, ignore the potential issue that the kids would actually do it - only concerned about laws/rules.

Depends on what you mean by "issues with the IRS." But I will tell you that doing it this way is extremely tax inefficient. The gift to your kids would result in your parents using up part of their lifetime unified estate and gift tax credit. It would also result in using up part of the federal generation skipping tax (GST), too. The GST is an additional tax on top of the estate & gift taxes when a gift is made two persons two generations or more younger than you (i.e. grandkids, greatgrandkids, etc). If the gift is made to a nonrelative than each generation is considered to be 20 years, so a gift to a friend 40 or more years younger than you would also result in GST. Then the gift from your kids back to you would then use up part of their lifetime unified estate an gift tax credit. That needlessly uses up a lot of credits/exemptions. You might say that it doesn't matter since the credit/exemptions cover over $11 million in gifts made currently and none of you will ever exceed that. The problem is that it drops back down to just over $5 million after 2025 and Bernie Sanders and others are proposing to significantly reduce those credits and exemptions. In short, you can't count on the credits/exemptions staying at a high level. So don't just waste them.

It would be far better for them to either keep their assets and use them for their own care (and get better care than Medicaid provides for as long as possible) or give the gifts to you from the start.

 

[BuckeyeMark]

Thanks Taxing Matters - I wasn't at all worried about the kids using up their lifetime gift giving allowance until you mentioned it - I'd never want to do that while they are too young to make an informed decision about it - even if it was a good idea instead of a bad one.

Based on this and other feedback - I think I'll tell the parents to stick with giving to me and if they want to help out with kids I think if they pay college tuition directly it doesn't count vs the lifetime limit.

 

[Taxing Matters]

Based on this and other feedback - I think I'll tell the parents to stick with giving to me and if they want to help out with kids I think if they pay college tuition directly it doesn't count vs the lifetime limit.

That is, I think, the much better way to go.