I recently found out I was going to inherit my Grandpa’s 1932 Chevrolet. I heard about inheritance taxes, but I don’t know how this applies to me. I haven’t found anything of use on google. My uncle (the executor) said if we get the title transfered by the end of the year, that I don’t have to pay inheritance tax. Something about 90 days after death or something like that. Anyone have any more information for me? FYI, the car is currently titled in Pennsylvania, and I am living in Texas. I’m hoping to move back to PA within the next year. Would it be better to get my father to take title of the car and then transfer it as a gift once I move? Not for purposes of evading taxes, but just to make things simpler. I’m not trying to do anything illegal here, I just want to make sure I do everything right with as little negative impact to me. After all, I’ve already lost my grandpa, I don’t see the need to tax me because of this. I just want part of him to remain in my family.
Someone with far more expertise than I will undoubtedly check in, and of course, if in doubt consult an attorney. Tho IAAL, I am not a stiffs and gifts lawyer, nor am I your lawyer. And I got lousy grades in law school.
I believe the first several hundred thousand are exempt from inheritance taxes. Was $200-300G or so when my p’s died a few years back, but I believe the Congr intended to increase it. I believe the exclusion is considerably over $200G right now, and understood the intent was for it to gradually ramp up to $1mil. So, say the exclusion is $200G. If gramps leaves you $100G, you pay no taxes. If he leaves you $500G, you only pay taxes on $300G.
BTW - the inheritance tax is the same as the gift tax - it is a cumulative lifetime amount. Therefore, say Gramps had been giving you $10G a year, that would count against the amount you could inherit without liability. Not relevant to your question, but i thought it was interesting.
I don’t remember any “90 day rule.”
I would assume it would cover the value of the car. Have fun drivving it. What a neat opportunity to remember your grandpa.
Well, start here for info about the estate tax (it’s referred to as the “estate” tax, not “inheritance” tax, so that’s what you should search for). Get the publications and read them. Basically, if your grandfather left an estate of less than $1 million, no return has to be filed, and no tax has to be paid (there are some twists involving gifts made in prior years, so this is an oversimplification).
Besides that, the estate tax applies to the entire estate, regardless of how much you got from it. And the estate has to pay whatever tax is owed, not you. It’s the executor of your grandfather’s estate who needs to understand all of this, not you.
There’s no “90 day rule” that I’m aware of.
Transferring the title to your father, who would then gift the car to you, is an unnecessary complication that could actually generate problems later. Your father is only allowed to give you $10k a year, cash or goods, as a gift without running into gift tax issues. An inheritance from an estate, on the other hand, is not a “gift,” so there’s no $10k per year limitation.
Wow, I guess I should have know that much. This is how little I know about this sort of thing.
Hmm… I’ll have to call and find out what’s going on here.
Well, my mother’s family has a way of cheating the system. Everything they do it technically legal, but a bit shady in some cases. I’m wondering if the 90 days simply coincides with the end of the year, and the estate tax is evaluated on the value of the estate at years end. (I haven’t read your articles yet but I plan to) It would not surprise me if they are trying to figure out how to pay less taxes. After all, their parents house has been in their name for 7 or 8 years now, since my grandmother had her stroke. My understanding is that this is an effort to avoid something with the way nursing homes work (although I have no idea how exactly, but I think the general idea is they get to keep the house instead of being forced to sell it) However, my mother is very uncomfortable with such dealings and I would not be surprised if he fudged a truth a bit for her.
I figured as much, but I don’t understand how everything works.
That is also very useful information, since they are planning to pay off my wife’s student loans which are currently at around $13,000. They simply make more money than they know how to spend and are trying to help us out. Would them mailing a check to Sallie Mae be the same as a gift to us? (Entirely separate question I realize)
I believe the executor in the OP is referring to the state inheritance tax, not the federal estate tax. And in this case, may be referring to Pennsylvania inheritance tax law, which allows a 5% discount if paid within 90 days of death, but not an outright exemption. Pennsylvania also has an estate tax, but it only applies if a Federal Estate Tax form needed to be filed.
Here’s the link to the Pennsylvania explanation:
http://www.revenue.state.pa.us/individual/cwp/view.asp?a=284&q=197718&revenuePNavCtr=|#3416
The value of the estate is determined at the moment of death, not at the end of the year in which death occurred.
A gift is a gift is a gift, no matter how it’s routed. But each person can give $10k a year to each of any number of other people, so they could give $6500 to each of you, thereby staying under the $10k line. Or, each of them could give $6500 to your wife. Either way would work just fine.
Apparently I was mistaken about this being an actual inheritance. For some reason or another, this is going to be a gift as far as taxes are concerned. I’m guessing either my grandmother’s name was on the title or my grandfathers estate was left entirely to my grandmother and she has the responsibility to distribute the estate, since she is no longer living at their home, but in a nursing home. So I know this changes things, but I’m not sure how. If I have any doubts about what I need to do, I will consult someone, but I’m not even sure what kind of person I would need to consult. Any further advice is appreciated. Thank you for your advice so far.
You really, really need to consult with an attorney. Someone who specializes in wills, trusts, and estates would probably be fine.
A couple of the things you’ve said make me very uncomfortable with the situation. If your grandfather’s will left everything to your grandmother (a very typical arrangement), it all belongs to her, and she has no “responsibility to distribute the estate.” If she’s had a stroke, and can’t reliably handle her own financial affairs, having someone else “gift” her assets away would be problematic, to say the least, unless someone’s got an ironclad durable power of attorney.
It sounds very much as if your parents and/or uncle are trying to get assets out of your grandmother’s name so that those assets won’t have to be used to pay for her nursing care. If, instead, the state is paying the bill (under Medicaid, for example), then what your relatives are doing is fraud, and you don’t want any part of it.
Get an attorney!!!
There’s nothing wrong with evading taxes IF the method of evasion is playing the system by its rules. People do it all the time (tax shelters and such). While what you suggest may be more trouble than it is worth there is nothing wrong with fiddling the transfer of titles if it somehow helps lower your tax exposure. Just be sure you do everything by the book and you’re ok as far as not going to jail is concerned.
According to my accountant, thats not the case for something like school. I am in a similar situation, and my accountant said that as long as my parents pay the school (grad school) directly, without the money passing through my hands, no gift tax applies. Not sure about loans for previous education, so YMMV
Also, FWIW the current limit is $11,000 not 10. And, as Early Out pointed out, it is an individual limit, so each parent can give $11,000 seperately to the same person.
Terminology nitpick: tax avoidance, i.e., making use of the provisions of the tax code to minimize your tax exposure, is perfectly legal. Tax evasion, i.e., trying to pull a fast one on the IRS, is a crime.
As I said in my last post, however, I get the strong feeling that what we’re dealing with here is only peripherally related to questions of gifts and taxes…
I don’t know the details. All I know at this point is that she is distributing some of my grandfather’s personal items. Beyond that, I don’t know what is happining to their posessions. I really don’t care, other than a few items I think it would be a waste to get rid of when a family member could use them (such as some antique desks and other heirloom type items they have collected). I’m not going to get involved in it unless I’m asked.
Yes, she has had a stroke. My uncle in the executor of my grandfather’s estate. I don’t know what the current arrangement is beyond that. I’m trying to determine exactly what is going on, but my parents don’t know and I can’t get a hold of my uncle. All I know is my parents said the car is a gift from my grandmother. She is the one the called and offered me the car. What the arrangement in to get the title transferred, I do not know.
My parents have no part in it. While I’m certain some of what my uncle (and probably my aunt) is doing is not entirely ethical, I know they have the laws researched. Right now, I know the money exists to pay for her nursing home care. They have already put down a 6 month (maybe a year) deposit. If I even get the hint when I talk to my uncle that there is anything illegal going on here, I will do as you suggest and:
At this poing, I don’t believe anything illegal is happening. I seriously doubt that the nursing home has a right to demand that they sell something my grandfather spent the better part of his life restoring, when they are currently writing checks for her care. Maybe that is the core issue here… what are the nursing home’s rights in the situation? Do they have a valid claim to the value of the car (assuming my grandmother’s name is on the title with my grandfather)?? Does a nursing home have a right to what is practically an heirloom? Being 1300 miles away from all of this doesn’t make it any easier to sort out, that’s for sure.
Yeah, it’s tough to sort it all out when you’re not in the thick of it.
Some nursing homes, particularly those run by religious or fraternal organizations, will provide nursing care for the rest of your life, but only if you agree to sign over all your stuff to them. But, that might not have to happen until the healthy spouse dies, and the other spouse is still in the nursing home. So, if someone lives longer than expected, and has relatively few assets, they lose out. If someone dies soon after coming to the nursing home, on the other hand, the home comes out ahead. Frankly, though, it sound like this isn’t the case here - if someone’s writing checks to the nursing home, things are probably kosher.
If the car really is intended as a gift to you, you don’t need to concern yourself with the gift tax issues - that’s a matter for your uncle to take care of. Your grandmother will sign it over to you, and you’ll get a new title for it, in your name, and then - road trip!
The same basic advice applies to financial help with student loans. Take whatever help they want to provide you, thank them sincerely, and enjoy. The gift tax issues aren’t a problem that you have to deal with. And remember that gifts are not income, so you don’t have to pay income tax on them, either.