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Q's re: Gift tax on giving winnings to family

Topic closed. 10 replies. Last post 3 years ago by dk1421.

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dk1421's avatar - Lottery-024.jpg
North Carolina
United States
Member #64582
September 1, 2008
332 Posts
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Posted: July 27, 2011, 10:03 pm - IP Logged

Hey All!

Just a few questions about AFTER I win the lottery.

First off, I'm planning on doing an LLC, if I can in NC. It used to say on the website you could, but now it doesn't say anything at all.

I'm hoping to give half my money away, mostly to family, some to charities. I know you can "give" someone up to $13,000 without having to pay taxes. I know both my spouse and I can give a gift to the same person (meaning a total of $26,000), but if we are doing an LLC, then I think we can only do $13,000 because it's one entity, correct?

I also always thought I could pay off their mortgages (and credit cards, bill, car payments, etc) as a way to get around the gift tax, but I've since heard that you can't. Can't as in, only they can make those payments. Is this correct too?

Is there any legal way to get around the gift tax? I want to help them out, but I don't want to spend $1M for them to get $500,000. I know some winners say they are buying a new car for their kids, but are they getting taxed too? As for homes, I do remember that a person must have however much they want to put down on the house for a few months in their savings account before they can buy it. I suppose that's to prevent people from avoiding the gift tax. I suppose maybe in both these scenarios, my name/LLC would be on the title too in order for it happen?

Then there's the Visa gift cards - I've wondered if I could put several thousands on it for them (yes, I know some have horrible charges, but they are changing the rules now).

What about opening a checking account for them with me putting in the money?

I've been wondering this stuff for a long time (as you can tell), so I appreciate some real answers.

Thanks!! You are all an awesome bunch!!!

"Don't be a schmuck, always take the cash." -Coin Toss

    ttech10's avatar - blobdude
    Texas
    United States
    Member #92332
    June 5, 2010
    764 Posts
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    Posted: July 27, 2011, 11:43 pm - IP Logged

    I've thought of two different things to be able to give family members money.

    The first is having different family members be a part of the LLC/trust. I think it may work to where it's simply a dividing up of the lottery payout to different people, rather than the money simply being a gift. I believe it's essentially what the lottery groups do and they only pay the income tax percentage so I don't see why you can't just say that the certain family members were all part of a group, with you the leader and them haven't a set percentage they would receive.

    I see this as the best option if you plan simply to give certain amounts to family/friends as a one time only thing. I would do this for my dad, as he would get a very large sum, and three older siblings who would receive a decent amount.

     

    Another is what you mentioned with the checking account. It'd be possible to set up a checking account and set them up as joint owners, so they'd be able to deposit/withdraw cash and I believe have debit cards/checks and also be able to take care of any issues (like if they're using the card out of state and the bank puts a hold on the account). I would have that account as a second account at my main bank, so that I could easily transfer money over instantly whenever needed.

    This is the one I have considered the most, especially since it would allow me to help my younger brother with, essentially, a nice monthly allowance. He would be graduating high school soon so he could use extra money in college for groceries, bills and other activities (or if he doesn't do college, then a little extra help a month for essentials). It would also allow me to monitor the usage of the money when he uses the debit card and also be able to cut back on his "allowance" if grades were dropping (or if he started using the money in non-approved ways).

    This is also the method I would use to give money to my mom, simply because she doesn't have the best of health so she would have access to whatever money she needs and we wouldn't have to deal with the "death tax" if she took a sudden turn, as the account would be in my ownership.

     

     

    As for buying things for other people, I want to say I've read somewhere that buying a car/house for someone would still require you to pay the gift tax, as well as the sales tax. It kind of makes sense since it's the equivalent of giving them tens or hundreds of thousands of dollars. You may be able to buy a car/house for someone and then simply keep it on your name for a year and then transfer it over. I don't know if there's anything the government can get you on with that, though. They may have some law that forces you to still pay some dumb extra tax on that.

      sully16's avatar - sharan
      Listens to the wind

      United States
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      October 28, 2009
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      Posted: July 28, 2011, 10:29 am - IP Logged

      If it were me I'd take cash withdrawals, what I do with my cash is my business.

      There's only one US Flag

        Jack-C's avatar - us
        San Diego, CA
        United States
        Member #61467
        May 24, 2008
        27703 Posts
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        Posted: July 28, 2011, 10:45 am - IP Logged

        So much of what has been suggested in this thread won't work (IMHO).  When you win, get a good Estate Attorney.  He/She will be able to do everything right.

          Raven62's avatar - binary
          New Jersey
          United States
          Member #17843
          June 28, 2005
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          Posted: July 28, 2011, 12:24 pm - IP Logged

          Annual gifts in excess of $13,000 are not subject to the gift tax if they are paid directly for the donee's tuition or medical expenses. Check with a Competent Tax Advisor.

          You may give any one person up to $13,000 in total gifts without filing a gift tax return (from 2009 � 2011).  This limit includes all gifts for the year, not just money or property. It includes birthdays, graduations, holidays, etc. (The limit was $12,000 from 2006-2008; $11,000 from 2002-2005.)

          For 2011 to 2012, the lifetime exclusion from gift taxes has risen to $5 million. During the 2005 to 2010 period, the lifetime exclusion on gifts was only $1 million dollars. Gift tax rates for taxable gifts have ranged from 47% in 2005, to 35% currently. Barring new legislation, the gift tax exclusion will revert to $1 million in 2013, with a tax rate of 50%.

          http://www.marketwatch.com/story/how-to-avoid-the-irs-gift-tax-trap-2011-04-01?pagenumber=1

          A mind once stretched by a new idea never returns to its original dimensions!

            rdgrnr's avatar - walt
            -Ridge Runner- Oracle of the Appalachians
            Way back up in them dadgum hills, son!
            United States
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            Posted: July 28, 2011, 1:14 pm - IP Logged

            Annual gifts in excess of $13,000 are not subject to the gift tax if they are paid directly for the donee's tuition or medical expenses. Check with a Competent Tax Advisor.

            You may give any one person up to $13,000 in total gifts without filing a gift tax return (from 2009 � 2011).  This limit includes all gifts for the year, not just money or property. It includes birthdays, graduations, holidays, etc. (The limit was $12,000 from 2006-2008; $11,000 from 2002-2005.)

            For 2011 to 2012, the lifetime exclusion from gift taxes has risen to $5 million. During the 2005 to 2010 period, the lifetime exclusion on gifts was only $1 million dollars. Gift tax rates for taxable gifts have ranged from 47% in 2005, to 35% currently. Barring new legislation, the gift tax exclusion will revert to $1 million in 2013, with a tax rate of 50%.

            http://www.marketwatch.com/story/how-to-avoid-the-irs-gift-tax-trap-2011-04-01?pagenumber=1

            I never cease to be amazed at how casually we discuss issues like this.

            Issues about how much we owe the government if we want to give a gift to a family member.

            I always wonder where the people were when our elected officials did these kinds of things to us.

            Why did they let them get away with it and why do we continue to let them get away with it?

            They talk about entitlements killing us (and it's true) while they are the biggest entity of entitlement the world has ever known. They are standing there with their hand out to take what we owe them  out of any money we get or even any money we want to give to family. And then they piss it away on nonsense and steal our Social Security money on top of it and do the same with that.

            I resent the fact that I would have to share any lottery jackpot winnings with those bloodsuckers and that I have to pay them off just to give my kids a gift.

            And at this very minute the D party is fighting to keep the spending spree going. And they need our lottery jackpots and those gift taxes and thousands of other taxes to keep it going.

            We're going 90 miles an hour down a dead end road with the President at the wheel with the pedal to the metal.

            And he's smiling all the way, enjoying the ride and saying it's not his fault.

            I never thought this could happen to our country.

            The libs must be as happy as fat rats in a cheese house.


                                                         
                                 
                                                     

             

             

             

             

                                                                                                               

            "The only thing necessary for evil to triumph is for good men to do nothing"

                                                                                                        --Edmund Burke

             

             

              Jack-C's avatar - us
              San Diego, CA
              United States
              Member #61467
              May 24, 2008
              27703 Posts
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              Posted: July 28, 2011, 1:18 pm - IP Logged

              I never cease to be amazed at how casually we discuss issues like this.

              Issues about how much we owe the government if we want to give a gift to a family member.

              I always wonder where the people were when our elected officials did these kinds of things to us.

              Why did they let them get away with it and why do we continue to let them get away with it?

              They talk about entitlements killing us (and it's true) while they are the biggest entity of entitlement the world has ever known. They are standing there with their hand out to take what we owe them  out of any money we get or even any money we want to give to family. And then they piss it away on nonsense and steal our Social Security money on top of it and do the same with that.

              I resent the fact that I would have to share any lottery jackpot winnings with those bloodsuckers and that I have to pay them off just to give my kids a gift.

              And at this very minute the D party is fighting to keep the spending spree going. And they need our lottery jackpots and those gift taxes and thousands of other taxes to keep it going.

              We're going 90 miles an hour down a dead end road with the President at the wheel with the pedal to the metal.

              And he's smiling all the way, enjoying the ride and saying it's not his fault.

              I never thought this could happen to our country.

              The libs must be as happy as fat rats in a cheese house.

              I Agree!

                sully16's avatar - sharan
                Listens to the wind

                United States
                Member #81740
                October 28, 2009
                19130 Posts
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                Posted: July 28, 2011, 1:20 pm - IP Logged

                Everyone should read the "Rise and fall of the Roman Empire" ,

                There's only one US Flag

                  ttech10's avatar - blobdude
                  Texas
                  United States
                  Member #92332
                  June 5, 2010
                  764 Posts
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                  Posted: July 28, 2011, 1:56 pm - IP Logged

                  So much of what has been suggested in this thread won't work (IMHO).  When you win, get a good Estate Attorney.  He/She will be able to do everything right.

                  Why wouldn't my two solutions work?

                  I know for a fact the first one that includes adding people to your LLC/trust works because it's exactly what large lottery groups use. There's nobody there that can say we weren't in a group and the percentages can be judged by how much per month someone put in. Now yea, it may not be the truth but they can't prove it isn't. All that would happen is the regular income tax (which I believe is the same if you do $5 million to 5 people as it would be just $25 million to one, so you wouldn't be losing any extra money due to taxes as you would the gift tax). If you don't want to lie to anyone about family/friends not being in a group with you, simply collect some money from each person that would correspond with the percentage you want to give them. 

                  As for the joint/shared account, I knew frat guys in college whose parents did that thing for them, put them as a shared account holder so that they could get access to whever money they needed whenever. Granted they didn't use it to bypass a gift tax of any sort, but they were still both in complete control of the money... so I know the part about starting one with my younger brother works. I believe the only way extra taxes would be involved is if it's a savings account (or one that takes interest) in which that other person may have to pay taxes on whatever money earned. I've signed on to joint access to another family members account and even though they had much more than $13,000 in there there was no issue with it, no extra taxes and the government didn't come asking questions. The bank even said that technically we both owened that money in there, so essentially they just gifted me >$13,000 and there was no extra taxes added for that gift tax. And I know for absolute certain that what I mentioned with the joint account and my mother (in case her health turned for the worse) works as we did the same thing with my great grandmother a while back, in order to avoid the hassle of anything that would arise (going through forms in order to get control of the money she left behind). You sign up for the typical joint ownership but add the 'Rights of Survivorship' to it.

                   

                  Yes, of course you would likely want to speak to someone professional about these things, but I've either had on hands experience with those solutions that I had mentioned or I've seen it done numerous times with the lottery groups. I know a guy here who specializes in these things and I would still go to him to discuss these plans before I actually tried to do them, but I believe that he would agree with them.

                    Avatar
                    New Member
                    Michigan
                    United States
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                    August 18, 2011
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                    Posted: August 18, 2011, 1:11 pm - IP Logged

                    The easiest way to share a jackpot and avoid gift taxes is to form a club or LLC and include those people for whatever share you want to give them.  A tax form 5754 is completed with each person's name and share amount.  Shares do not have to be equal; you can take 90% and give 5 others 2% each, for example.

                    When you use this form, the IRS will not dispute it or try to call it a gift.

                     

                    This method might help in another way, too:  Tell each recipient:  "This is IT.  Use it wisely, as I will NOT be giving you any more."  Recipients will be less likely to be constantly at your door asking for more.

                      dk1421's avatar - Lottery-024.jpg
                      North Carolina
                      United States
                      Member #64582
                      September 1, 2008
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                      Posted: August 19, 2011, 10:24 pm - IP Logged

                      Thanks, JusCurious!

                      I was planning on doing an LLC, but it's been a while since I've read about it and guess I missed that part - so thank you! That solves all the problems!

                      And yes, I was also planning on telling them this is it, money-wise. And that if they have any business ideas/etc, they have to get it approved through my board first. This is to prevent me from being the bad guy when they have bad business ideas.

                      "Don't be a schmuck, always take the cash." -Coin Toss