- quote -

Just going through some old posts here... this comment
brought to my mind a "well what if" question... if you folks
don't mind... what if the father had cosigned the loan with
his daughter and son in law? or to make things more
complicated; what if the MOTHER had done the cosigning.
would either of these circumstances cause you to change your
response?

Thanks,
Shhhh

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pleasedontemailme[at]dot.com wrote:

- quote -

I don't think that giving the money to the grandkids will be
a good solution to the original problem. If each child
gets $12,000 then that money is the child's property
and the parents can't take it and use it for their own
purposes.

I would think that the best solution would be the
$24,000 now and $24,000 on January 1, 2007
approach, assuming both daughters are married.

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james_garrideb[at]yahoo.com wrote:

- quote -

The proceeds are not taxable to the father as the named
beneficiary. Special rules apply if the proceeds are paid in
installments or if the policy was sold prior to death, but
it doesn't sound like there are any special circumstances.

However, if he starts handing out money it's not going to
matter to the IRS that it came to him as insurance proceeds.
A gift to his daughters over the annual exclusion amount is
going to be subject to gift tax. This is true whether the
gift takes the form or cash or the form of a payment towards
a loan for which the father is not responsible.

On the subject of life insurance Pub 559 might be helpful.
The discussion in that publication is a little longer and
more detailed than the one in Pub 554.

For gift taxes, you should refer to Pub 950. One way to
work around the gift tax might be for the father to give his
daughter $12,000 (the annual exclusion amount) and the same
amount to you and to each of your children, if any. If you
have a couple of kids, that's $48,000 tax-free.

The father can give more and can give it all to his daughter
and can avoid gift taxes if he wants to use his unified
credit, but he might be required to file Form 709.

All the pubs and forms are available on the IRS website at
http://www.irs.gov.

-Crystal

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james_garrideb[at]yahoo.com wrote:

- quote -

Paying off your equity line = gift. No difference.

One may gift another $12k/yr with no tax consequences.
Father in law can gift you and the missus $24K this year and
next, for $48K total. If the other daughter is married, well
the same goes for her and her husband. This is the simplest
way to do it.

A bit more convoluted is the ability to gift above the limit
(so, over 12K to a person), and use up some of one's unified
lifetime gift credit. This means tapping into the amount
that one may leave tax fre to beneficiaries at death while
the person is still alive. I don't see the need to go that
way, given the $96K will cover your objective. If you have
children, he can gift to them or their college accounts to
top it off to 100K exactly. I am sorry for your loss.

JOE

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<james_garrideb[at]yahoo.com> wrote:

- quote -

If he were to disclaim, would the two daughters (only) then
get the life insurance proceeds? Are they the contingent
beneficiaries of the policy?

If so, he could disclaim and the two daughters could each
gift him 10,000, No taxes involved here.

Otherwise, he could make gifts over sevral years to avoid
the annual limit, or could give to each daughter and also
son-in-law, assuming there are trustworthy sons-in-law?

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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james_garrideb[at]yahoo.com wrote:

- quote -

Not necessarily the best idea.

- quote -

That would be a good choice.

- quote -

Life insurance generally escapes income tax. But once Dad
receives it, it's his and will be subject to gift tax if he
gives away too much of it all at once.

One thing he MIGHT do (talk to a local lawyer to see if it
will work in your case) is to do a qualfied disclaimer of
the $100,000. If he does it within nine months of
step-mom's death, that money could go directly to Dad's kids
equally without gift tax.

Stu

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I'm looking for someone to point me in the right direction
for more information.

Here's the story:

My wife's step mother recently passed away. She was survived
by her husband (my wife's dad, my father-in-law). My father
in law is the beneficiary on a life insurance policy. The
amount of the benefit is on the order of $120,000. He has
mentioned that he is considering keeping $20K for himself
and splitting the remaining $100K between his two daughters.

Assuming that he follows through on this idea, how can he do
it so that we all pay the least amount of taxes? My wife
suggested that instead of giving us $50K outright, he pay
off our home equity loan (which is about the same amount).
She believes that this path will help him avoid gift taxes.
She has also mentioned that since it is a life insurance
benefit, gift taxes don't apply. I'm skeptical and
concerned. I'd rather not suffer a big tax bill, but more
importantly I'd rather my father-in-law not suffer tax
penalties for making an unwise/poorly planned move.

Any advice? Where can I get more information?

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