Gift vs. inheritance tax

[kent]

Here's the deal. An old man had a trust with his daughter listed as 50% beneficiary. Prior to his passing away he instructed the trustee to distribute her 50%.

Given she was to inherit that money anyway, the trustee complied with his wish.

Having just learned about this situation yesterday triggered some concern on my part. Specifically, if she inherited the money (about $225,000) after he died there would be no taxes, right?

On the other hand, because it was distributed before he died, doesn't that trigger a "gift tax" situation? And as such, the "estate" is required to pay the taxes on those funds distributed?

The trustee will be meeting with the attorney that created the trust and will also be contacting the tax person (I think she's an Enrolled Agent) to find out.

I'm just looking for a little advanced warning. I've already told the trustee she may be responsible taking care of the gift tax situation out of estate funds and that if she didn't, the IRS could make her pay it herself - putting the fear of God in her so she doesn't distribute the balance of the estate until this is resolved.

Thanks in advance!

ETA An extension for filing the 2010 tax return has been filed.
Also, the man died this year.

[commentator]

Any gift and/or estate tax total will be the same either way.

A gift tax return is required for the year in which the gift was made.

Any gift or estate tax liability would be a liability of the estate.

[mwcpa]

a lot more facts need to be reviewed here...such as

who created the trust, was this a grantor trust created by the man, was he just the beneficiary of the trust.....

was daughter the residual or ultimate beneficiary at the end of the day for the 50%... who was the other beneficiary?

going to the attorney (hopefully an estate and trust attorney) is the best move her to check out what the trust agreement actually says....

[kent]

Apr 16, 2011 5:01:39 GMT -5 mwcpa said:

a lot more facts need to be reviewed here...such as

who created the trust, was this a grantor trust created by the man, was he just the beneficiary of the trust.....

was daughter the residual or ultimate beneficiary at the end of the day for the 50%... who was the other beneficiary?

going to the attorney (hopefully an estate and trust attorney) is the best move her to check out what the trust agreement actually says....

mwcpa Thanks for the response. All this is way above my pay grade but, as I understand things, the man created the trust. He named his daughter as beneficiary of 50% and his three brothers were to get the other 50% divided equally.

The trustee will meet with the attorney that put the trust together to get it all straightened out - hopefully. I just have a gut feeling that distributing the 50% to the daughter prior to his death was a big mistake and constituted a gift whereas if it had been distributed after his death it might (?) have been exempt from tax because it was an inheritance? We shall see.

Once again, thanks!

[Deleted]

Hard to say, But that gift is still under the $1million lifetime exemption so there should not be any taxes due on it.

[kent]

Apr 18, 2011 12:06:06 GMT -5 ArchietheDragon said:

Hard to say, But that gift is still under the $1million lifetime exemption so there should not be any taxes due on it.

Archie Really? I thought you could only "gift" something like $13,000 without triggering some sort of tax filing. Wait. Does the system say you have to file a "gift" tax return but there are no taxes unless the amount exceeds $1M?

Groan....how to I get myself involved in these things?

[Deleted]

Apr 18, 2011 12:26:07 GMT -5 kent said:

Apr 18, 2011 12:06:06 GMT -5 ArchietheDragon said:

Hard to say, But that gift is still under the $1million lifetime exemption so there should not be any taxes due on it.

Archie Really? I thought you could only "gift" something like $13,000 without triggering some sort of tax filing. Wait. Does the system say you have to file a "gift" tax return but there are no taxes unless the amount exceeds $1M?

BINGO

Apr 18, 2011 12:26:07 GMT -5 kent said:

Apr 18, 2011 12:06:06 GMT -5 ArchietheDragon said:

Hard to say, But that gift is still under the $1million lifetime exemption so there should not be any taxes due on it.

Groan....how to I get myself involved in these things?

I have been wondering the same thing.

[kent]

Apr 18, 2011 12:27:27 GMT -5 ArchietheDragon said:

Apr 18, 2011 12:26:07 GMT -5 kent said:

Archie Really? I thought you could only "gift" something like $13,000 without triggering some sort of tax filing. Wait. Does the system say you have to file a "gift" tax return but there are no taxes unless the amount exceeds $1M?

BINGO




Groan....how to I get myself involved in these things?

I have been wondering the same thing. [/quote]

This info will make the trustee very happy. Thanks for wondering about me Archie, I need all the support I can get.

[commentator]

If gifts by one individual to another exceed a total of $13,000 in value, then the donor has to file a gift tax return. No gift tax is due until such gifts total $1,000,000 in the donor's lifetime.

[Deleted]

Commentator,

Is a trust considered an individual for gift tax purposes?

[commentator]

Trusts can make distributions only as allowed/required by the trust document. The gift tax implications fall upon the grantor of the trust. When in time those implications fall depends upon the nature of the trust.

[rangerj]

Pay attention to the above post. Depending upon the trust and its trust instrument the distribution may be taxable income and not a "gift". The trip to the attorney is a good idea, especially if the distribution has not been made yet.

[mwcpa]

the trip to the attorney is the best course of action here.... way too many things to look at that just cannot be reviewed in a forum like this....