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Inheritance Advice
Posted on 1/24/23 at 10:06 am
Posted on 1/24/23 at 10:06 am
My grandparents over Christmas gifted everyone essentially what would have been their future inheritance. I received $50k while my three 8 and under children received $30k each.
I already have 529's for each kid, ranging from $8-$11k per, and I throw $50 at it per kid each month. My thought was to give the kids options beyond education expenses, and perhaps have control of the money beyond them turning 18 like a UTMA would require. Was thinking I couldn't go wrong with just setting up separate accounts under my fidelity login for each kid and just dumping their share into VTI or VOO and come back in 15 years.
Thoughts on this plan? I've never been more stressed about what to do with money, the responsibility of properly handling such a generous gift from my kid's great grandparents weighs on me more than my own investment and retirement planning!
I already have 529's for each kid, ranging from $8-$11k per, and I throw $50 at it per kid each month. My thought was to give the kids options beyond education expenses, and perhaps have control of the money beyond them turning 18 like a UTMA would require. Was thinking I couldn't go wrong with just setting up separate accounts under my fidelity login for each kid and just dumping their share into VTI or VOO and come back in 15 years.
Thoughts on this plan? I've never been more stressed about what to do with money, the responsibility of properly handling such a generous gift from my kid's great grandparents weighs on me more than my own investment and retirement planning!
8
Posted on 1/24/23 at 10:19 am to EveryonesACoach
I thought you could only gift someone $16k annually tax-free, $17k in 2023. Outside of what to do the net amount, I believe you might owe taxes on the excess gifts over $16k. Maybe you've already taken that into account - just wanted to make sure I brought it up.
Posted on 1/24/23 at 10:25 am to EveryonesACoach
If the money was actually gifted to the kids in their name, your options from a legal standpoint are a bit more limited.
As far as the gift tax question asked above, that’s probably one of the biggest misconceptions on this board. There is an annual gift limit, yes, but there is also a lifetime gift limit. Anything above the annual amount is counted against the lifetime amount, which is currently $12.92mm per individual estate, provided you file the appropriate tax form.
As far as the gift tax question asked above, that’s probably one of the biggest misconceptions on this board. There is an annual gift limit, yes, but there is also a lifetime gift limit. Anything above the annual amount is counted against the lifetime amount, which is currently $12.92mm per individual estate, provided you file the appropriate tax form.
Posted on 1/24/23 at 10:32 am to Bacchus
Thanks, you're sort of correct. The $16k limit is the max you can give per year per individual without it counting as a taxable gift. The tax would be paid by the donor typically, not the recipient. Even so, that max number is just a yearly shelter from the $12M lifetime exemption.
Posted on 1/24/23 at 10:34 am to slackster
If not in a trust or UTMA, doesn't the money technically end up just belonging to the minor guardian? Grandparents wrote one big check with everyone's name on it, I cashed it in my bank account where it sits for now.
Posted on 1/24/23 at 10:44 am to EveryonesACoach
quote:
Grandparents wrote one big check with everyone's name on it, I cashed it in my bank account where it sits for now.
What did it say in the payee line?
Posted on 1/24/23 at 10:53 am to slackster
quote:
What did it say in the payee line?
It had each of our names listed together as the payee on each check.
Posted on 1/24/23 at 11:22 am to EveryonesACoach
quote:
randparents wrote one big check with everyone's name on it, I cashed it in my bank account where it sits for now.
Dammit.
I make my clients issue one check per donor, per donee. So if mom and dad are giving 50K to son and daughter in law, that's four checks written.
Kids can only have custodian accounts (UTMA/UGMA). Yes, it sounds like the payee now has a big chunk of money. If you then open up the custodian accounts for the kids, and fund them, you are making a gift from you to them, and gift tax rules apply.
Posted on 1/24/23 at 11:26 am to Bacchus
quote:
There is an annual gift limit, yes, but there is also a lifetime gift limit. Anything above the annual amount is counted against the lifetime amount, which is currently $12.92mm per individual estate, provided you file the appropriate tax form.
This!
My FIL would gift more to his grandkids if he could get this misconception out of his mind. True but kidding, as his grandkids are fine. Annual limits are limiting!
Posted on 1/24/23 at 11:28 am to EveryonesACoach
quote:
Was thinking I couldn't go wrong with just setting up separate accounts under my fidelity login for each kid and just dumping their share into VTI or VOO and come back in 15 years.
Put me down as agreeing! This is what I would do.
Gives you options should your kids get scholarships or turn into bank robbers (kidding).
Posted on 1/24/23 at 11:52 am to LSUFanHouston
quote:
I make my clients issue one check per donor, per donee. So if mom and dad are giving 50K to son and daughter in law, that's four checks written.
Kids can only have custodian accounts (UTMA/UGMA). Yes, it sounds like the payee now has a big chunk of money. If you then open up the custodian accounts for the kids, and fund them, you are making a gift from you to them, and gift tax rules apply.
Since the grand parents are still alive, can the OP just have them put the purpose of the funds in writing to avoid OP from potentially having to deal with gift tax forms, exemptions?
Posted on 1/24/23 at 12:07 pm to Weekend Warrior79
quote:
Since the grand parents are still alive, can the OP just have them put the purpose of the funds in writing to avoid OP from potentially having to deal with gift tax forms, exemptions?
Yeah, I would have that memorialized and signed. Hopefully the IRS would accep that if audited (and there is a very low risk this would be audited).
Posted on 1/24/23 at 12:31 pm to LSUFanHouston
Interesting, didn't think of it like this. By going with my original investment question, if I grew that $30k into $60k each and gave to the kids later in life, I'd be having to file my own gift tax form for $180k is what you're thinking?
Posted on 1/24/23 at 12:39 pm to EveryonesACoach
quote:
Interesting, didn't think of it like this. By going with my original investment question, if I grew that $30k into $60k each and gave to the kids later in life, I'd be having to file my own gift tax form for $180k is what you're thinking?
Yes.
Posted on 1/24/23 at 2:59 pm to EveryonesACoach
quote:
It had each of our names listed together as the payee on each check.
Honestly surprised the bank let you deposit it into an account in just your name.
Posted on 1/24/23 at 4:37 pm to EveryonesACoach
quote:
By going with my original investment question, if I grew that $30k into $60k each and gave to the kids later in life, I'd be having to file my own gift tax form for $180k is what you're thinking?
You'd have to file the gift form if you gave the entire $60k at one time. If you split it up over a few years and stayed below the annual limit then no need to file anything.
Also keep in mind, lets say you had the money in something like VTI. If you gift the actual shares, the cost basis goes along with the gift. So each kid would then pay capital gains whenever they sell. Or you could sell it first but then you'd pay the capital gains.
The alternative is to hold on to it and let your kids inherit instead. Then the investment (which hopefully has grown significantly more by then) would get a stepped up cost basis.
Posted on 1/24/23 at 4:58 pm to EveryonesACoach
quote:
My thought was to give the kids options beyond education expenses, and perhaps have control of the money beyond them turning 18 like a UTMA would require. Was thinking I couldn't go wrong with just setting up separate accounts under my fidelity login for each kid and just dumping their share into VTI or VOO and come back in 15 years.
Have you asked the grandparents their thoughts? Could be a double edged sword as you may keyhole yourself into a bad idea. But just a thought?
Personally I think I'd consider putting something like $10k into their college fund and then opening individual accounts for $20k invested.
They can use it to buy their first car, downpayment on a house, wedding, etc. Sure its theirs but raise them right and they should make a good decision.
In my limited experience with friends and family, honestly I think its better for people to blow less money quickly then have someone manage it for them. Strictly because they will either learn or they won't. At least if they blow it you will know they suck with money. I've seen all too often someone baby their kids and then their kids never learn on their own.
Posted on 1/24/23 at 5:04 pm to EveryonesACoach
quote:
Thoughts on this plan? I've never been more stressed about what to do with money, the responsibility of properly handling such a generous gift from my kid's great grandparents weighs on me more than my own investment and retirement planning!
Keep in mind that if you do it under your name, you also bring potential estate consequences in play should you pass before you disperse the funds. Also potential issues in separate property vs community property. These issues are basically moot in a custodial/UTMA account. I would revisit that idea with a CPA/estate attorney to get some clarity.
This post was edited on 1/24/23 at 5:05 pm
Posted on 1/24/23 at 7:18 pm to EveryonesACoach
quote:
Grandparents wrote one big check with everyone's name on it
Not the right way to do that.
Should have been separate checks.
quote:
I cashed it in my bank account where it sits for now.
Not the right way to do that.
Should have been separate bank accounts.
Did they spring this on you without warning?
Something like this needs a little thought and preparation first.
This post was edited on 1/24/23 at 7:23 pm
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