You are not my estate lawyer, finance lady, or tax guy. Can you help me find that person?
June 1, 2012 2:44 PM   Subscribe

Grandma set up an uneven trust and we want to distribute it equally. Who do we talk to and what do we ask them? Questions about imbalanced inheritances, DIY redistribution of wealth, and taxes within...

Situation: My father passed away recently, and a trust that his mother set up is being disbursed to my half-sister and me in the next 1-3 months. The total amount of the trust is about $108k (before assorted administrative fees, TBD, are taken out).

For reasons known only to her, my grandmother set up the trust to go 3/4 to me and 1/4 to my half-sister. I'd like to divide the money equally (unsurprisingly, half-sister is also ok with this plan). The bank which administers the trust says they can't change the distribution, so it's up to us to do it independently. I'm in Massachusetts and my half-sister's in New York; the trust was set up in New Jersey but is now administered by a big nationwide bank with offices in Philadelphia.

This is my first time being An Heiress and I could use some guidance. It's understood that you are not my lawyer, finance lady or tax guy; I'm looking for help finding the right person and asking them the right questions.

Things I'm considering now:
-Is it worth revisiting the distribution issue with the bank to see if there's a way they can divide things 50/50? They told me their hands are tied legally by the trust; could a financial or legal expert achieve different results?
-What are the income tax implications from receiving an inheritance from a trust, and what is the best way to minimize them? (Half of the trust is about a years' salary for me, so if it's counted as income it's a significant jump.)
-If I transfer a big chunk of what I inherit to someone else, what's the best way to estimate the taxes I'll be asked to pay on that particular chunk of money, as opposed to the inheritance I keep and my usual income, so that we can account for it fairly?
-I understand that there's a gift tax which I'm responsible for if I give an individual more than $13,000 in a year - what's the best way to avoid/minimize gift tax issues in this case, especially given that I would prefer to transfer all the money at once?

I'm happy to read answers/theories on the questions above, but what I could most use help with are:
-What type of expert or experts should I enlist to help walk me through this process - lawyer? Accountant? Financial adviser? Other?
-What vital questions have I neglected to consider?

Thanks for your help, AskMe!
posted by anonymous to Work & Money (14 answers total)
 
I'd start with an actual estate lawyer.
posted by barnone at 2:50 PM on June 1, 2012 [1 favorite]


Forget about changing the distribution in the trust. It is extremely impractical if not impossible.

All your tax questions will depend quite a bit on your personal financial situation. Either an estate lawyer or a financial adviser may be able to help you, but you need to ask around and find someone who can handle these issues. I'm a lawyer and I would say a financial advisor (especially if you can find one who is also a CPA) may be a better choice because they are more equipped to give you concrete advice about how to minimize your taxes. Lawyers will tell you in theory, but they may not want to actually look at your tax returns and talk numbers with you. Since you are in Massachusetts, I would find someone local, since the majority of the tax burden will be yours unless you structure this correctly.
posted by chickenmagazine at 2:51 PM on June 1, 2012 [3 favorites]


I understand that there's a gift tax which I'm responsible for if I give an individual more than $13,000 in a year - what's the best way to avoid/minimize gift tax issues in this case, especially given that I would prefer to transfer all the money at once?

Note: I am not a lawyer or a tax attorney, but I don't think that's true. Right now we have a lifetime gift tax exemption of something like $5 million dollars, and the first $13,000 in any year don't count toward that limit. But please consult an expert.
posted by muddgirl at 2:56 PM on June 1, 2012


My mom and dad set up a trust. My dad had 2 kids before he met my mom. She felt that she was the helpmate that contributed to the bulk of his estate and she wanted her kids to benefit in that case and before she died they set up a trust (terminal cancer financial talk) where that when my dad died me and my full brother would get 30% and my halves would get 20%... I very much doubt there is anything you can do to work around this. That is the whole point of a living trust.
posted by misspony at 2:56 PM on June 1, 2012


just to clarify, it was me and my brother 30% each, and each half sibling 20%
posted by misspony at 2:58 PM on June 1, 2012


Yeah, this is the sort of thing that you should get a tax accountant involved in. You probably don't need an attorney, since, as others have noted, changing the terms of the trust is probably a fool's errand.

So spend a little of that money talking to someone who can give you actual advice that will help you both in your situation. If you're in the position of bumping up against the gift tax, you can afford it and indeed they will probably have any number of ways for you to avoid paying that tax.
posted by gauche at 3:08 PM on June 1, 2012


Talk to a CPA-JD or a CPA-CFP who works with a good JD.
posted by michaelh at 3:11 PM on June 1, 2012 [1 favorite]


Yes, consult a lawyer.

When my dad died last year, he had a Money Market account that also had my brother and one of my sister's name on the account. However, his will indicated that all assets are to be shared equally among his four children (and all of my siblings agree). My brother did the finances, but I think they had to split it using the "lifetime gift tax exemption" rule. But there is a tradeoff - when my brother and sister pass away, they lose some tax benefits by sharing the Money Market with myself and our other sister. It had less to do with the will, and more because their names were on the accounts. In any case, I'm not exactly sure - there's a way to do it, but you need an estate lawyer.
posted by raztaj at 3:33 PM on June 1, 2012


At least some of the info in muddgirl's link is completely incorrect (the part where it says the recipient pays the gift tax), so I would not be inclined to take that as authoritative.

Here is the IRS page with gift tax FAQs: http://www.irs.gov/businesses/small/article/0,,id=108139,00.html

And a page that contains a bit more thorough explanation and examples: www.irs.gov/publications/p950/ar02.html#en_US_publink100099453
(go to section Applying the Unified Credit to Gift Tax).
posted by Lady Li at 5:32 PM on June 1, 2012


Yeah, sorry, that link was pretty terrible in places. It does explicitly say, in bold text, that the gifter may be responsible for taxes over a certain amount.
posted by muddgirl at 5:57 PM on June 1, 2012


I don't completely trust my memory but when I inherited from my grandparents, the estate paid all the taxes - there was no income tax for me. Since the amount that you want to transfer to your sister is only about $25,000, I'm guessing the easiest thing will be for you just give her half the amount when you get yours and the other half the next year so you don't have to worry about tracking your use of the gift tax exemption for the rest of your life. Obviously double check this with an accountant but if I'm right, this might be pretty easy to fix.
posted by metahawk at 7:03 PM on June 1, 2012


I can't speak to what taxes you may or may not owe on the actual disbursements; consult an accountant or whatever if you want advice. But it's trivially to take care of the splitting it 50/50 part. Give your sister $13000 when you receive your money and another $13000 in January. Or possibly a little less depending on the fees you're talking about. Boom, you're done and do not owe any gift taxes.
posted by Justinian at 7:19 PM on June 1, 2012


IANYL but this shouldn't be too complicated. It is likely trivial if you are married.

Before talking with a tax adviser or lawyer, if you are not married, it may be helpful to think about how important it is for you to "square up" the distribution immediately, or if it's ok for you to spread it over two years (and what gift tax consequences you might be willing to bear to avoid spreading it over two years). But at the levels of cash we're talking about, that's probably not worth it.

Many of the estate- and tax-planning techniques used to manage large transfers of wealth simply aren't applicable or worthwhile for a $25k (additional) gift. So don't be too confused if you've been googling around for estate-planning advice.

Also, logistically, make sure you and your sister understand that estate administration fees can be surprising. It may be helpful to confirm everyone expectations about when the additional "square up" distribution will occur (which would likely be a bit later than other distributions).

TINLA and YANMC. Good luck!
posted by QuantumMeruit at 7:21 PM on June 1, 2012 [1 favorite]


Send me a memail, i have lots of info for you about how to do this well.
posted by Nickel Pickle at 10:16 PM on June 1, 2012


« Older What if it all falls apart?   |   Charged sales tax for printing wedding invites -... Newer »
This thread is closed to new comments.