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Legally avoid the gift tax?

Topic closed. 8 replies. Last post 9 years ago by AuntiePat.

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Guru101's avatar - rw6jhh
Indiana
United States
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January 7, 2007
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Posted: August 13, 2007, 10:13 pm - IP Logged

Wouldn't it be possible to avoid the gift tax by claiming as a group? For example, if I spend $5 on a PowerBall, and wanted my parents to get 2/3 of it, couldn't I just say they gave me $2 towards it? Wouldn't this be a legal way of avoiding the gift tax?

Gonna win.Big Smile

    SirMetro's avatar - center
    East of Atlanta
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    August 11, 2004
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    Posted: August 13, 2007, 10:33 pm - IP Logged

    perhaps the simpliest approach is a joint checking account where you deposit funds as you please into it and anyone who's name is on it can make use of the funds as they see fit

    There could be ramifications if it's obvious, but if you set it up right, keep it simple and the funds are used reasonably, you could do it that way.

    Another idea you should probably consider is what is called a reverse mortgage. This is where you can arrange the mortgage such that you are paying the a monthly check towards your payments. So instead of your parents paying the mortgage on the house, they receive payments for the house for as long as they live. When they pass away, you get the house. This is used often in Europe and has made some inroads here in the US.

    Check with a good real estate planner for details like this. Insures you can take care of your parents, lottery or not and gift tax is a non-issue.

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      Georgia
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      Posted: August 13, 2007, 10:47 pm - IP Logged

      No, you would just be creating a tax burden for your parents. Your parents would be trading gift tax for a 40 percent income tax. I believe gift tax is 10 or 15 percent. 40 percent on millions is a lot of money being lost.

        Guru101's avatar - rw6jhh
        Indiana
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        Posted: August 13, 2007, 11:56 pm - IP Logged

        No, you would just be creating a tax burden for your parents. Your parents would be trading gift tax for a 40 percent income tax. I believe gift tax is 10 or 15 percent. 40 percent on millions is a lot of money being lost.

        I thought the gift tax was a lot higher?

        Gonna win.Big Smile

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          Indiana
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          Posted: August 14, 2007, 8:04 am - IP Logged

          Guru,

          Your first question is the way to go.  Claim as a group.  I think the Hoosier Lottery will pay multiple winners.  I'm not sure but it appears that way from some of their press announcements.  So you and your parents could claim the ticket and each take 1/3rd.  That way you'd each be responsible for your respective share of income tax.

          The other option would be to either form a Family Corporation like an LLC or some sort of family revocable living trust.  That way each person can get a share and again be responsible for their own taxes.

          But if you claim the prize and then just give money to them you will be subject to the gift tax.  After the first $12,000, I think the federal gift tax rate on that much money is 45% or 46%!!!.

          Jim 


          Money frees you from doing things you dislike.  Since I dislike doing nearly everything, money is handy.  - Groucho Marx

            joshuacloak's avatar - Money Swim-uncle-scrooge-mcduck-35997717-677-518.jpg

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            Posted: August 14, 2007, 9:47 am - IP Logged

            smart aware people use this

            a trust

            you can set it up yourself and be one of the many Beneficiaries along with your parents

             

            the trustie/your creation intent of the trust ,you can put the intent is to give you must of the money/whatever else in trust , they"parents" also get some as  Beneficiaries alongside you in the trust

             

            the trust pays the tax!

            AND say your parents and yours  tax's dont GO UP on there other income!

             

            a trust is the simple thing to do.

            it pays  tax  on the money won and dont make the individuals taxes go up by putting them in a higher tax range !!!!!!!!!!!!!

             

             matters like this are a cake walk for trusts

             

            hell, if your not already paying the top 35% tax range, and you have other income thats taxed,

            and then/win big money,a  TRUST JUST MAKES COMMON SENSE,

            sense it  takes your winnings away form your other income

            as a  individual you save big time!

            so"other income" wont be taxed to hell like your winnings.

             

            the  fact is

            you can make the trust.and your slaves"the trusties'" do what you say and say who gets what, takes care of everything

             

            like if i won anything big, i set up a trust and i never have to deal with the irs as a individual

            also if i wanted to give big money to anyone else, i just make whoever that is,  one of the  many beneficiarie before hand

            and i think you can add more  Beneficiaries as time goes by, if the intent by everyone already in the trust, is for it :D

             

             

             wikipedia>

            A trust is created by a settlor, who entrusts some or all of his property to people of his choice (the trustees). The trustees are the legal owners of the trust property (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary)

             

            but if you do have big money, just talk to a trust lawyer/creater , am sure they can fill you in much better then we ever could LOL 

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              md
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              April 20, 2005
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              Posted: August 14, 2007, 1:15 pm - IP Logged

              perhaps the simpliest approach is a joint checking account where you deposit funds as you please into it and anyone who's name is on it can make use of the funds as they see fit

              There could be ramifications if it's obvious, but if you set it up right, keep it simple and the funds are used reasonably, you could do it that way.

              Another idea you should probably consider is what is called a reverse mortgage. This is where you can arrange the mortgage such that you are paying the a monthly check towards your payments. So instead of your parents paying the mortgage on the house, they receive payments for the house for as long as they live. When they pass away, you get the house. This is used often in Europe and has made some inroads here in the US.

              Check with a good real estate planner for details like this. Insures you can take care of your parents, lottery or not and gift tax is a non-issue.

              Your advice to check with an expert real estate agent is correct.  Becuase some of the advice floating around in these threads border on tax evasion and can cause a person Jack Whitaker problems. 

              Below is some real clear but basic information. 

               

              How does a reverse mortgage work?

               

              First answer by Jeanine. Last edit by Trixam. Contributor trust: 72 [recommend contributor]. Question popularity: 225 [recommend question]

              Answer

              Designed for seniors, a reverse mortgage is a loan that allows the homeowner to convert some of the equity in their home into cash or monthly income, while retaining home ownership. Reverse mortgages work much like traditional mortgages, only in reverse. Rather than making a payment to the lender each month, the lender pays the borrower. All persons on the title must be at least 62 years old and occupy the home as their principal residence. You must own your home "free and clear" or have a very small mortgage balance. Income is not required to qualify. Reverse mortgages do not have to be paid back until the last surviving borrower dies, sells the home, or moves out. The total amount owed at the end of the loan equals all of the cash advances you've received, plus the accrued interest.

              Answer

              Reverse mortgages also work in a purchase transaction. You can purchase a home without making a single monthly mortgage payment. This option allows seniors to move close to family when the need arises. There are various ways seniors can benefit with a reverse mortgage including receiving additional tax-free monthly income or a lump sum payment, cancelling a current mortgage payment, funding long term care insurance and in-home care, renovations and repair work to their homes. For more information contact Monique Jeffers, Reverse Mortgage Specialist at (281)880-6100.

              Answer

              Now that you have understood how a reverse mortgage works, you may want to know the pros and cons of a reverse mortgage. Details can be found at this website: http://www.MortgageRefinance.Sitetekk.com/reverse_mortgage_pros_and_cons.html

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                NY
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                October 16, 2005
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                Posted: August 14, 2007, 3:05 pm - IP Logged

                Wouldn't it be possible to avoid the gift tax by claiming as a group? For example, if I spend $5 on a PowerBall, and wanted my parents to get 2/3 of it, couldn't I just say they gave me $2 towards it? Wouldn't this be a legal way of avoiding the gift tax?

                For your specific example the answer is no, because your parents would only have a 40% interest. The general, but short answer is  maybe. How many checks the lottery writes doesn't necessarily matter when the IRS comes looking for the taxes. Giving a lot of money to your parents may be foolish, anyway.

                For the longer answer look here: http://www.lotterypost.com/thread/160814 

                  AuntiePat's avatar - animaniacs10
                  Just outside of Cleveland, OH
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                  Posted: August 14, 2007, 4:41 pm - IP Logged

                  No, you would just be creating a tax burden for your parents. Your parents would be trading gift tax for a 40 percent income tax. I believe gift tax is 10 or 15 percent. 40 percent on millions is a lot of money being lost.

                  Someone is going to shoulder the tax burden--why not give enough that will cover taxes.

                  After a certain level, the Gift Tax is 46%, same as Inheritance Tax for anything over $1,000,000 (Lifetime Umbrella Exclusion) per person  Liferime ($2.000,000 perperson lifetime if the gifting is done by a married couple), although this may be one of the two or three years that either the Gift Tax or the Inheritance Tax is in abeyance.  I DO know that, as the law is currently written, the year 2010 in unique in that the Inheritance Tax for that year is 0% but returns to the 46%-50% the next year.  However I would NOT expect this loophole to stand very long.

                  Go to Google and Google the words save wealth and go to a publication by the same name which gives lots of information on the formation of Trusts and shielding of some types of income. Even then, the news isn't very good--I  (not that I'm an expert party--only an highly interested one with a few good connections) am a believer in sharing the wealth from a winning lottery ticket  at the get go (and letting them pay taxes on what they get by making them co-winners on the ticket) and saving back for myself from a group win enough to live well off the interest.  In this scenario--I would hope to be keeping 1/3 and splitting 2/3 with family but how this can be done. . .well, I haven't worked that part out. . .yet(LOL).

                   

                  Also-- if Original Poster is asking if you can make your parents co-owners of the ticket--that can be done provided there is a clear cut agreement drawn up--ideally done before the win but in the real world, usually done after the win.  If you are not using a good tax attorney to guide you, I would suggest to you that you consult with the Trust Department of a very trustworthy (ee-yew--that's a groaner of a pun) bank. 

                  I know that there are states that do not require a single winning ticket to be split equally if there is a group winning it.  I have read and reread Ohio's newly remodeled Lottery web site and the only mention that I could find was that in case of multiple winning tickets, the lottery is split evenly between each winning ticket. . .but I didn't quickly find any info if a single ticket was presented with multiple winners.  There are other states that allow varying %'s to be paid out of a single winning ticket to be split by a group--however I do not know if this ticket can be claimed anonymously (if you happen to be lucky enough to live in a state that allows anonymity to its winners of large jackpots).

                  I do know someone (not well--he is a friend of my Sig.Oth.'s and does not live close) and he was part of a communal group that won a ticket on Ohio's Old SuperLotto game (which was stopped when OH joined the Mega Millions multi state jackpot) but their group already had an agreement in place that provided for equal winning shares as well as for exclusions for those who failed to pay the amount due for any weeks' tickets--and as you might suspect--the group had 14 people in it at the time of the agreement but the week they won (which was about 15 months after the agreement)--only 11 people had paid (boredom and disillusionment due to lack of winning was taking over by then) so only 11 people got paid.  I sat rather uncomfortably last year at a funeral at a table of one who had gotten paid and had to listen to the bitter comments of the man in back of me at another table (who was one of the 3 people originally in the group who had NOT gotten paid part of the winnings and who took the group to court and lost) and this was at least 6 years ago when the group won.

                  Gots to go now--Hope tomorrow morning I'm reading "I WON" on the LP news (backed up, of course by a scanned pic of the legitimate winning tkt) WRT MM drawing tonight.