|
|
Post by epaul on May 12, 2023 14:30:47 GMT -5
Daughter and hubby are buying a first house.
We have decided to give them an early chunk of inheritance to help out (as knocking off some principal right off the bat has such a huge, and safely guaranteed, payoff on a 20-year loan).
$15,000 is the limit for tax-free gift in a given year. More tax-free money can be given a child in the form of a sizable loan if the loan is construed as a legal loan with IRS-approved interest rates applied.
Question: Is a loan construed as "IRS legal" if the terms are written out and both parties sign the document signifying agreement with the terms or do additional steps need to be taken (i.e. notarized or something).
(as I understand it, applying the loan to a house payment is legal, sticking it in the stock market isn't)
|
|
|
|
Post by Cosmic Wonder on May 12, 2023 15:07:12 GMT -5
This year the gift tax exemption is $17,000.00
Mike
|
|
|
|
Post by david on May 12, 2023 16:05:40 GMT -5
My free legal advice: 1. See and pay a CPA for answers. 2. If a personal loan is part of the plan, it will need to be disclosed on your son and dil's primary mortgage/loan application, so you might want to make certain that their primary loan has no early payment penalties, then personally loan them money after their primary mortgage is in place - to allow them to pay it down.
|
|
|
|
Post by John B on May 12, 2023 17:18:36 GMT -5
Daughter and hubby are buying a first house. We have decided to give them an early chunk of inheritance to help out (as knocking off some principal right off the bat has such a huge, and safely guaranteed, payoff on a 20-year loan). $15,000 is the limit for tax-free gift in a given year. More tax-free money can be given a child in the form of a sizable loan if the loan is construed as a legal loan with IRS-approved interest rates applied. Question: Is a loan construed as "IRS legal" if the terms are written out and both parties sign the document signifying agreement with the terms or do additional steps need to be taken (i.e. notarized or something). (as I understand it, applying the loan to a house payment is legal, sticking it in the stock market isn't) My advice: see an attorney for helpful attorney-type advice. And of course everything I'm going to say is general advice. Depending on your facts and circumstances my advice could be very different. Not knowing the value of farm land, I offer you a couple of pieces of advice. Right now if you and Charlene pass away ("die,' Howard) you each have $12.92 million of gift tax exemption, less whatever you may have used in the past transferring land, etc. That amount is transferrable to spouses upon passing of the first spouse ("DSUE" or deceased spousal unused exemption). So if you haven't used any and you die, your $12.92 million exemption goes to Charlene, and she has $25.84 million in gifts to make either before she dies or her death. As Mike pointed out, you can transfer $17K per person per recipient per year before you need to worry about gift tax exemptions. So you can transfer $17K to daughter, Charlene transfers $17K to daughter, you transfer $17K to husband, Charlene transfers $17K to husband. That's $68K you can transfer without worrying about exemptions. You do that now, then you do $68K on January 1, 2024. Like I said, I have no idea what other assets you may have, but a family farm complicates things a little. Not a lot. The fact that the lifetime exemption will be cut in half per person in a few years is another complicating factor as you will need to plan your death wisely (just kidding). But if the farm is worth $10 million and you haven't made any major gifts, just give the kids whatever you want. When the exclusion drops back down to about $6.5 million you and Charlene will still have $13 million of gifting ability and only $10 million of assets to give. If you do decide to gift an amount larger than the exemption, File a gift tax return so you start the statute of limitations running on the valuation of what your transferring. I'd even help you fill out the forms, which are really straightforward. If you wanted to give them $200K you show that gift then end up deducting the $68K so there's only a $132K gift. No taxes due or anything until you eat up your lifetime exemption. You show on that form that you're using up $132K of yours (or $66K of yours and Charlene's using $66K of hers). If your estate's worth more than $10 million, then maybe you do want to do a loan and forgive the principal every year. You would also have to forgive the interest, and recognize the interest as income. You could probably pull the Minnesota model loan agreement as a starting point to drafting the note. You could also structure it as a mortgage, in which case you'd want to pull the MN model mortgage. You'll also want to register the mortgage with the county. The loan should be structured like any other loan would, with a payment schedule (monthly or annually) with interested calculated as well. The IRS publishes interest rates each month indicating what the minimum interest rate should be - the rate used will be dictated by the term of the loan. At the end of each year, draft up a piece of paper that says something to the effect of, "in 2023 Charlene and I are forgiving principal of $X and interest of $Y due to us under the terms of the loan executed on XX/YY/ZZZZ." I can go on and on, which is why I am so interesting at parties. |
|
|
|
Post by John B on May 12, 2023 17:22:40 GMT -5
Oh yeah, and how is Anna married?!? Is she even old enough to drive?!?!? (from 2007 IJam, sorry for the blurry pic)  |
|
|
|
Post by Cosmic Wonder on May 12, 2023 18:37:27 GMT -5
“I can go on and on, which is why I am so interesting at parties.“
😂🤣😝
Mike
|
|
|
|
Post by epaul on May 12, 2023 19:37:20 GMT -5
2... you might want to make certain that their primary loan has no early payment penalties, then personally loan them money after their primary mortgage is in place - to allow them to pay it down. This alone is worth every cent I paid you. I had no idea banks could legally prevent early payment on principal. We paid off the Grand Forks house in three years no issues. I knew you had to instruct the bank to direct extra payments to the principal (or the buggers wouldn't), but it never entered my mind they could administer, if mortgage so written, a penalty for early payment. This is all early and just coming down, this weekend we will be talking turkey. The offer on the house has been accepted and Anna qualified, barely, for some kind of first time home buyer deal that has several details that didn't come clear over the phone. And I'm not sure if the financing deal is closed or if going to her credit union with a nice downpayment in hand is still an option. Much to be learned. And much to be left alone (as it is Anna's deal). And when I know more, I will spend some quality time with a lawyer or CPA well versed in this stuff. |
|
|
|
Post by Rob Hanesworth on May 12, 2023 19:48:10 GMT -5
Oh yeah, and how is Anna married?!? Is she even old enough to drive?!?!? (from 2007 IJam, sorry for the blurry pic) John, Nancy and I have $11 we want to distribute among our four children. What are the tax implications? |
|
|
|
Post by John B on May 12, 2023 19:48:42 GMT -5
Oh yeah, and how is Anna married?!? Is she even old enough to drive?!?!? (from 2007 IJam, sorry for the blurry pic) John, Nancy and I have $11 we want to distribute among our four children. What are the tax implications? I can tell you, but it will cost you $11. |
|
|
|
Post by epaul on May 12, 2023 20:28:26 GMT -5
Thanks, John. Much to digest. I got pretty excited about deeding/gifting/something the farm to the kids a couple years ago when the Democrats were talking about doing away with the "stepped up basis". But that talk fell away
(for now... I expect progressives have their eyes on inheritance as a soft target for funding various reparations projects, but, push come to shove, they will have to leave modest, middle-middle class inheritances somewhat relatively alone... and getting at the well-protected stash of the truly wealthy will prove nigh impossible... leaving the upper middle class screwed.)
Anyway, I've a couple years left on the current farm rental contract before I need revisit things.
|
|
|
|
Post by Village Idiot on May 12, 2023 20:32:38 GMT -5
My advice is, why do they want to live so north where it's so cold? My suggestion is for them to take a serious look at a different latitude.
|
|
|
|
Post by epaul on May 12, 2023 20:36:55 GMT -5
Fargo is down south by my reckoning.
|
|
|
|
Post by Cosmic Wonder on May 12, 2023 21:29:50 GMT -5
My advice is, why do they want to live so north where it's so cold? My suggestion is for them to take a serious look at a different latitude. Saaay, you’re not such an idiot after all. Mike |
|
|
|
Post by dradtke on May 12, 2023 21:36:03 GMT -5
you each have $12.92 million of gift tax exemption, 12 mil, Paul? Then how come I always have to pay for the beers cause you're "a little short?" Huh? |
|
|
|
Post by epaul on May 12, 2023 22:01:07 GMT -5
How do you think I got the 12 mil?
|
|
|
|
Post by drlj on May 13, 2023 7:35:10 GMT -5
1. Send all financial access to me.
2. Trust me to do the right thing.
3. Rest easy.
|
|
|
|
Post by Cosmic Wonder on May 13, 2023 8:25:05 GMT -5
1. Send all financial access to me. 2. Trust me to do the right thing. 3. Rest easy. I’m pretty sure the only reason LJ is here is because he heard that if you go on the internet you get free cookies. Mike |
|
