Should I sign over this check?
November 19, 2013 9:41 AM   Subscribe

My father has just sent me this specific text - "I'd like to do some income tax avoidance, completely above the board, by having you sign over a check to me from my year end family trust account funds. I've had my brother's son **** do this is the past, no big deal just a matter of having someone in the family sign a check made out to them over to me."

I'd like to help my dad out since he is really having a hard time financially right now, but also don't want to have my refund be any less or get in trouble in any way because of this. I've reached out to the brother's son in question but gotten no response. Any insight, MeFites?
posted by assasinatdbeauty to Law & Government (37 answers total) 2 users marked this as a favorite
 
It might be considered a gift to a family member, which can be untaxed up to a certain amount. The federal limit is many thousands of dollars, I believe, per gift recipient.

I am not an accountant and do not understand tax law, or trusts, or much of anything related to the question. But it's not unpossible for this to be a legitimate thing. You should probably pay an accountant $50 to answer the question for you.
posted by jsturgill at 9:44 AM on November 19, 2013


I suggest you find out why your cousin doesn't want to do it again.
posted by griphus at 9:46 AM on November 19, 2013 [25 favorites]


If you want to help out your dad financially then give him a gift of money. Never do anything shifty and tax related for or with a family member from a trust account that has not been specifically recommended to you by a legit licensed accountant and even then I would consider getting a second opinion.

I say this as a person whose mismanaged-by-family-members finances have led to an assesed penalty payment larger than 2 years of my salary.
posted by poffin boffin at 9:47 AM on November 19, 2013 [18 favorites]


Ask a tax advisor: you're asking a legal question for which there is probably a specific answer.
posted by MoonOrb at 9:48 AM on November 19, 2013 [3 favorites]


You can receive a gift of under $14,000 tax free. Here's the IRS page on it.

It's most assuredly not kosher though. Unless you keep the money.

He may be doing this with your cousin AND you, but check it out with your cousin.
posted by Ruthless Bunny at 9:50 AM on November 19, 2013 [1 favorite]


No you should not sign over that check.

He may be asking you to be complicit in fraud depending on the specific terms of the trust agreement. Even if this is technically allowed by the trust agreement you may still be committing a tax violation and I would bet that a good tax lawyer could find a legal and nonfraudulent way for him to get a tax advantage that doesn't involve you signing over checks.

Definitely run this past your cousin or other family members involved in the trust.

IAMAL, IANYL
posted by zdravo at 9:50 AM on November 19, 2013


Legal is one thing, ethical is a related but not identical thing. Does this _seem_ right to you?
posted by amtho at 9:53 AM on November 19, 2013 [1 favorite]


"I'd like to do some income tax avoidance, completely above the board"

Does not compute.

As someone who has dealt with IRS audits, I would not mess around with this stuff.
posted by PhoBWanKenobi at 9:57 AM on November 19, 2013 [6 favorites]


Last year my grandma gave me and my brother a (quite large, under the IRS gift minimum) check to lessen her tax burden. The understanding is that it is "mine" unless she has some catastrophic health problem or needs to go in a home, in which case we would use that money to help her out. My brother and I are both fiscally responsible enough that the money is just sitting in our savings accounts right now until it is needed/no longer needed.

I don't know what specifically your dad is up to, but what my grandma did was vetted by her lawyer and legal.
posted by phunniemee at 10:01 AM on November 19, 2013 [2 favorites]


As a person qualified to answer this question in real life, I suggest you find a person qualified to answer this question in real life.
posted by melissasaurus at 10:01 AM on November 19, 2013 [55 favorites]


There are completely legal maneuvers to shield income from taxes. People who have trusts are, in general, the kind of people who might need or want to use these maneuvers.

People everywhere can be shady and make poor decisions, even if they mean well, though. So that's why you should get a real answer from someone who knows what the answer is--because there is an actual, legal answer that exists somewhere.
posted by jsturgill at 10:02 AM on November 19, 2013 [1 favorite]


IANAL, IANYL, TINLA.

I am very, very wary about any kind of income tax avoidance. First, because we as a nation need the taxes for the sake of the overall economy and everyone has to share that burden. And secondly, I would never, ever mess with the IRS. These are the guys who finally took down Capone and all that.

That said, your Dad may just be taking advantage of the higher exemption rates on family trusts that went became permanent in January. If so, this could be a legally acceptable way for you to help your Dad out financially that is built into existing tax law.

Honestly, though, best answer? You need to do your own research rather than ask us online. There's just too many individual variables that could be in play here (almost all financial Ask questions should be answered this way).

Ask your Dad to explain the details of this Trust to you. If you don't want to insult him, which I certainly understand, you can frame it as wanting to be more aware generally of budget planning for the future, whatever. But find out what kind of Trust this is, who set it up, etc. Make sure you completely understand what you are getting into and what the possible legal ramifications are before making your decision.
posted by misha at 10:12 AM on November 19, 2013 [4 favorites]


It could be legal, but one of the things that you dad isn't doing, is asking you about your tax situation right now. So he doesn't know if/how it affects your taxes at all. And the notable part is that he. isn't. asking. you. That's not okay - no matter what financial difficulties he is in right now.

My general rule of thumb: When you mess with/are going to affect people's financial wellbeing, particularly in a way that helps you, but doesn't necessarily help them, you need to do a better job than breezily stating that 'really, it's totally fine, X did this for me before'. Doubly so, when for whatever reason, there is a history of you having financial troubles. Your dad needs to do a better job of explaining this to you. If for no other reason, because you need to be able to explain in a tax audit what you were thinking, and really 'my dad said it was fine, and my cousin did it' might do nothing more than get your cousin in trouble as well.

Is it fine? Who knows, but unless your tax situation is exactly like your cousin's - same tax bracket, etc., this *could* affect you differently. Yes, this is what a CPA/tax attorney is for. You could also decide that the time to find and talk to a CPA/money it would take to figure this out isn't worth it to you as it stands, and perhaps make him pay for that? After all, you are helping him out. Or you could just say no. That's okay too.
posted by anitanita at 10:17 AM on November 19, 2013 [5 favorites]


I do not believe that this is in any way "above board" if this is in the US. Definitely consult an attorney about this before getting involved in it if you're going to consider it at all. If you're just signing over the check immediately, I have no idea how you would possibly justify this as being a gift in good faith. A gift made with the understanding that it's in anticipation of an inheritance and that you'll support your parent/grandparent if they run out of money this way is one thing, immediately endorsing a check over to somebody else is another. The IRS in general does not just look at the form of a transaction, it's interested in the substance. If there's no substance to it... very bad sign.
posted by Sequence at 10:17 AM on November 19, 2013 [2 favorites]


"Dad, I totally trust you. However, the tax laws are incredibly complex, and smarter people than you or I or you-and-I-together have made perfectly innocent mistakes that led to ruin. I want to find an independent tax expert who can tell us in excruciating detail whether this might be one of those mistakes."
posted by Etrigan at 10:18 AM on November 19, 2013 [4 favorites]


I agree with everyone else that you need your own lawyer and/or accountant before you do this. If you don't want to get a lawyer and/or accountant, well, there's an easy solution to that: Don't sign over the check.

Last year my grandma gave me and my brother a (quite large, under the IRS gift minimum) check to lessen her tax burden. The understanding is that it is "mine" unless she has some catastrophic health problem or needs to go in a home, in which case we would use that money to help her out. My brother and I are both fiscally responsible enough that the money is just sitting in our savings accounts right now until it is needed/no longer needed.

This is a different thing, though? This sounds like it's due to the Medicare 5-year lookback period which is about qualifying for public funding for nursing homes etc. (Unless the OP actually means Medicare. But I don't think so.)
posted by pie ninja at 10:21 AM on November 19, 2013 [1 favorite]


As a person qualified to answer this question in real life, I suggest you find a person qualified to answer this question in real life.

As another person qualified to answer this question in real life, I wish I had 12 million favorites to give this answer. For now I'll just give it one, agree with it, and store it up to pretend I came up with it myself the next time there is a complex legal question in AskMe.
posted by The Bellman at 10:25 AM on November 19, 2013 [6 favorites]


I have a simple rule in life: never mess with the cops (i.e., legally empowered to shoot you) or the IRS (who can take most of what you own).

You obviously also feel this is a little off-kilter: if you thought it was totally aboveboard, you wouldn't have even asked this question.

Things to ask: this is money payable to you from the trust, right?
*So your father is asking you to give him your share for this year..... does he intend to ever repay you, is this supposed to be a loan or a gift from you to him? If it's supposed to be a loan, when and how is the repayment to be arranged, and will he sign a contract stating that repayment schedule?
*What happens if he fails to repay you? What would be the emotional fallout, as well as the financial fallout? The rule here is, never loan money you can't afford to lose completely.
*How are your finances? Remember the oxygen-mask rule: always make sure you have your own mask on before you try to help someone else put theirs on --- or in this case, make sure your financial situation is solid (your bills are paid, your credit cards balances are at or near zero, you have a good safety cushion in case of sickness or job loss, etc.) before you think about handing over money you might need to other people. I'm sorry if he's in a hard spot, but you have to think of yourself first.
*Once you know if he intends this to be a loan or a gift, stop right there and talk to your own lawyer and/or tax accountant: get professional advice before promising your father one cent.
posted by easily confused at 10:28 AM on November 19, 2013


There are a bunch of folks in this thread saying silly things like "OMG don't ever try to avoid taxes! The IRS is big and scary!" and "Gifts to family are tax exempt!"

You ought to ignore all of that.

The one thing you might notice is that the people who are qualified to answer this question for you are all saying the same thing: you need to talk to a lawyer and/or accountant. That is the only correct answer to this situation for two reasons:

a) You've not provided anywhere in the ballpark of enough information to give you a good answer and

b) Even if you had, what you're asking for is legal / tax advice, and you ought to be getting that from someone qualified and licensed to give that advice to you in your jurisdiction and from nobody else.

Everything else here is just idle speculation that could be right or could get you into a whole heap of trouble.

Lawyer [ / Accountant]
posted by toomuchpete at 10:44 AM on November 19, 2013 [5 favorites]


Generalize this.... what smells funny about it? "Please do something for you that you get no benefit for. Trust me. Based on someone else I convinced to do it."

"Hold my gun while I empty this guy's wallet, OK?"

No one's dad, mom, wife, siblings, husband ever screwed them, EVAR. What could possibly go wrong? All cops are good. All priests are celibate. Jesus lives. My herpes is in remission. I won't get you pregnant. Just the tip....

Heed the most excellent advice above and sign nothing for which you have not personally seen or at least been given the untethered opportunity to read and/or review, at the very minimum.

Honestly, this is fairly self-evident territory not needing advice from the internet, but since you asked.....

The real question you SHOULD be asking is how to respond to dad. After you say NO, of course.
posted by FauxScot at 10:45 AM on November 19, 2013 [4 favorites]


completely above the board

Whenever someone says this, of course you can be assured that they are acting lawfully.

I don't understand what he is trying to do. How could you sign over a check to him from trust account funds payable to him? It makes no sense. And even if it did make sense, you would be just as foolish to follow any sort of legal/tax advice from us.

Follow melissasaurus's advice.
posted by Tanizaki at 10:57 AM on November 19, 2013 [1 favorite]


at the very least, this isn't the sort of request that should come over a text message - that alone would make me wary. you need to have a conversation with your dad, with a lawyer/accountant, and maybe with your cousin.
posted by nadawi at 11:13 AM on November 19, 2013


It sounds to me like he wants this money without it being counted as income - hence making out the cheque to you and having you sign it over as a gift. Works great for him, but would that not count as income to you? If he's not mentioning that part of it, he's not asking you to help him commit tax fraud... he's asking you to commit tax fraud on your own return for his gain, whether he knows it or not.

Or maybe I don't understand the details and the situation is completely innocuous. That's the problem - neither you nor your father nor anybody in this thread have the expertise to tell whether this is legal tax avoidance or illegal tax evasion. Please don't do this without professional advice.
posted by Turbo-B at 11:16 AM on November 19, 2013


This is something that is done in certain types of trusts. The money is filtered through one trustee to another. Totally legit if done properly.
posted by Gungho at 11:53 AM on November 19, 2013


"would that not count as income to you?"
Np because it's a gift under $14,000. If you haven't gotten to that gift limit, it's not income. He's giving you a big chunk of money, but it's not a real gift. Get legal advice or tax advice and ignore all the posts that say otherwise.
posted by Ideefixe at 12:26 PM on November 19, 2013


To clarify, that is whats going on here - it's a personal trust from my grandmother, the executor would be making the check out to me since i'm in the family, i'd be signing it over to my father. it would fall under the "gifting" category of things. For monetary reasons I can't hire an accountant or lawyer, we *just* make it by food-wise week to week.
posted by assasinatdbeauty at 12:28 PM on November 19, 2013


we *just* make it by food-wise week to week.

... and your father gives you a big cheque, just for you to launder through your account and give back to him?

With no back story it's hard to tell, but for me that is a HUGE red flag.
posted by GeeEmm at 12:33 PM on November 19, 2013 [2 favorites]


assasinatdbeauty, I totally understand not having the money to hire an accountant or lawyer, but just imagine how it would be if the IRS determines that you are legally in the wrong here. You could be talking about a significantly larger sum of money.

These folks seem to be available in your area. I'd definitely check with them.
posted by BrianJ at 12:37 PM on November 19, 2013


Sorry, really not threadsitting, i see this could turn into a tangential issue without clarification - he is in massive debt for legitimate reasons, the money goes straight to paying it off. We're all pretty poor unfortunately and the grandmother in question is not willing to help out any more than the allotted yearly trust payout.
posted by assasinatdbeauty at 12:38 PM on November 19, 2013


If he's that broke, the amount of income tax he's going to pay on this is not going to be very much anyway. If the amount of money being distributed from the trust is enough for the tax to be even worth blinking at, then it's enough for him to spring for an attorney. If it's not, then this is not worth the risk.
posted by Sequence at 12:42 PM on November 19, 2013 [1 favorite]


Is there a reason why the money disbursed to you wouldn't be taxed rather than if it were disbursed to him directly? How did he come up with this plan? Because this:

...the executor would be making the check out to me since i'm in the family, i'd be signing it over to my father. it would fall under the "gifting" category of things.

doesn't adequately explain why you wouldn't be liable for paying the same tax he's trying to avoid.
posted by griphus at 12:44 PM on November 19, 2013 [1 favorite]


Also, if you can't afford an accountant, you can't afford the consequences that come with poorly-informed tax dodging. If you couldn't afford a dentist, you wouldn't try to extract your own wisdom teeth, right?
posted by griphus at 12:48 PM on November 19, 2013 [1 favorite]


Okay, he's broke --- but it sure sounds like you are deeply in need of using your own money.

I'm gonna go with several other people here: IANAL, but while ***maybe*** its legal (and only a tax accountant or lawyer can tell you for sure), its definately shady & not very ethical. Sure, your father would get money he needs to pay down his debts, but what about your own debts? And too, it may count as a gift to him (and as such, he wouldn't pay taxes on it), but it would be income to you (and in that case you would pay taxes).

Which is a long way of saying you ('pretty poor' and 'just making it food-wise') would be paying extra money that you don't have for the priviledge of giving away money you yourself need.
posted by easily confused at 12:53 PM on November 19, 2013


One explanation as to why he needs you to do it:

I believe the gift limits are scoped by giver/recipient. So if your father gets one payout from the trust (gift), you get another (gift, then regifted), and your cousin does/did another (gift, then regifted), he can get a huge amount of untaxed dollars (gift limit * number of givers).

Note that this scheme relies on an interpretation of the wikipedia article by a lay person on his lunch hour, and is not admissible in an IRS hearing by anyone who is sane.

But all this weird talk about how doing money things is unethical!!!1! is weird and wrong and on par with the people scolding victims of the lending crisis for walking away from their underwater mortgages. Complexity of law doesn't mean you just throw your hands up and admit defeat (while labeling everyone who engages with their finances in a high level as shady and unethical), nor does it mean you just close your eyes and leap, hoping for the best.

Might mean that you should talk with someone who knows the entire scheme and the relevant legal stuff, though.
posted by jsturgill at 1:06 PM on November 19, 2013 [1 favorite]


"Since I don't understand what's going on, please call my accountant/attorney and explain the reason for the transaction to him. Or have your accountant/attorney do so."

If you get a check for several thousand dollars, you are certainly well advised to spend a few hundred of it to get sound advice. It's your money unless and until you decide to make a gift of it to him.

Tax avoidance is often legal. Tax evasion is not. Problem is, we cannot tell from your posting or comments which it is. It sounds very much like he's running a scam on your grandmother, and she will be none too happy when she finds out.
posted by megatherium at 1:30 PM on November 19, 2013 [1 favorite]


I don't know anything about the legal or tax or financial implications, so I am just going to address what might be going on emotionally here.
For the purposes of this comment (Note- NOT real life, which probably is more complicated and dangerous!), I am going to assume that what your father is asking you to do is technically legal but shady. (Again, check this with people who know.)

Sounds like your father needs money and you have access to some money from your grandmother. He wants you to give it to him.
If that alone is the situation, how do you feel about it?

Questions to consider here on the emotional side:
1. Would your grandmother be upset if she found out the money earmarked for you was going to your father instead?
2. If your grandmother was upset, would you feel guilty or fine?
3. Do you need this money for yourself?
4. Pretend the money is yours alone and not from the trust. Do you want to give it to your father? Do you want to give some but not all? That is an option too.
5. Will this open a door to financial manipulation in the future from your father (i.e. are you going to be asked to sign every trust check over to him now)?
6. Are you ok with your father asking you to do something that is a little shady? Would you be ok with being asked to do this again?

If I were in the shoes of someone in the scenario I described above, I would get the check from the trust and then use some of it to get a consultation with an estate lawyer or tax specialist. Then if they said it was legal, I would probably give some but not all of it over to my father. It sounds like you need some funds as well, and should look out for yourself and your family's future as well as your father.

But please first check both the legality and implications of this, and also check your personal feelings.
posted by rmless at 2:19 PM on November 19, 2013


Also, if you can't afford an accountant, you can't afford the consequences that come with poorly-informed tax dodging.

This is spot on. You're worried about a few hundred bucks when the risk of taking bad tax/legal advice from strangers on the internet is several orders of magnitude greater than that.
posted by toomuchpete at 11:10 PM on November 19, 2013


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