Gift Tax

[Slicer]

My father recently passed and his will says (and his desires were) for his estate to be split between me and my brother. However, his life insurance policy names me as the sole beneficiary.

When I give my brother his half of the 75k policy, is that considered a gift from me to my brother? Will I have to pay tax on this?

In general, how does the IRS know when money changes hands like this? Seems pretty much impossible for the IRS to track $12k (or more) just randomly moving from one person's account to another.

[disneysteve]

Yes, if you give him $37,500, that is considered a gift. You can give him up to 12K/year without triggering gift tax rules. If you are married, you and your spouse can each give him 12K. If he is also married, you can each give each of them 12K, so 48K total. I'm not sure what happens if you exceed the 12K in one year, though.

[NDArmyGrrl]

Instead of you giving him the 75K out of the money from the life insurance and having to deal with gift taxes by transfering the money, when you divide the other assets, could he get his split from them.

What I mean is, if you are planning on selling dad's house and it is worth 200K after taxes are paid and your half would be 100K so instead of you getting 100K you get 25K and he gets paid the 75K from your split.

[tripods68]

Sorry to hear about your Dad.

You should contact a CPA or an Attorney specializing in Estate Planning. I think they would be more qualified in handling your gift or tax situations.

Just a thought

[sweeps]

I remember reading something about waiving part or all of the proceeds from a life insurance policy. Perhaps you could waive your right to half the proceeds and have them directed to your brother? But I don't know... I'm sure it depends on the life insurance policy, state laws, etc.

Tripods is probably right -- consult a pro.

[Slicer]

Yea, I'll definately consult a pro. Just thought I'd get some general feedback from others. Never can have too much information .. unless it's all totally invalid .. hehe.

Actually, having my wife contribute 12k is a good idea since the inheritence becomes ours. Or, she could even take 12k out of our savings and I could put 12k from the inheritence in to cover it ... or whatever..

Seems like there's many ways to skirt around this stupid tax and still be considered legal. Still I'm not sure how anyone can track all this for the 300 million people in the states .. arbitrarily passing money around.

I'm not trying to avoid taxes illegally but it does seem like an odd tax and not real easy to keep track of.

[moneybags]

since the inheritence becomes ours

Technically, the inheritance is yours. If you inherit money, keep it in your name only, separate from your other funds, it would be yours in a divorce situation. Definitely a personal choice.

Even so, you could gift money in the same amount from another source if you kept these funds separate.