Receiving a large sum of $$$

tech_hunter

I have a friend who may be getting a large sum of money from some realatives, from what I understand this isnt due to the execution of a will. The family members are I guess distributing most of their wealth among their children and grand children. I already advised her to hire an accountant when the money comes in, and the amount is going to be at least 1 million. So she had questions about the taxes that may need to be paid on it and other stuff. Would this be taxable under capital gains and since this isnt an inheritance it shouldnt be taxable under that right? So I guess what i want to know is how to keep the tax man from taking a big chunk of her wad.

Obs

So you're technically asking how to do something illegal.

tech_hunter

Jesus Obs. No I am not asking about illegal activities, but there are loop holes in tax law and making investments with money that can either defer or reduse the amount that can be taxed and that is what I want to know.

Malkor

I think there's a certain amount of money that can be considered a 'gift' and is tax free, but I'm thinking its around $60k. The accountant should know what's up though.

variant

I thought you said you told her to get an accountant? He should know.

tech_hunter

Yes I did advise her to get an accountant but I was hoping that maybe someone here would have some knowledge so that she wont just be going in blind or at least be aware of some options.

Octoparrot

Malkor wrote: »

I think there's a certain amount of money that can be considered a 'gift' and is tax free, but I'm thinking its around $60k. The accountant should know what's up though.

You heard that in the Shawshank Redemption?

khain

This might help http://www.fairmark.com/begin/gifts.htm

Malkor

Octoparrot wrote: »

Malkor wrote: »

I think there's a certain amount of money that can be considered a 'gift' and is tax free, but I'm thinking its around $60k. The accountant should know what's up though.

You heard that in the Shawshank Redemption?

Wow, really? I have no idea where Its from.

http://en.wikipedia.org/wiki/Generation-skipping_transfer_tax

Thanatos

Assuming you're in the U.S., it wouldn't be taxable as inheritance, but it would be taxable under the same code, as a gift, which would eat up a bunch of your unified credit. Basically, any gift $12,000 or under you can take for free. Any gift over that is subject to the gift tax, however you're allowed to simply write off a bunch of the tax on it as a "unified credit," which is a certain amount of gift tax you're just allowed to ignore over your lifetime. In 2007, that amount is $645,000, or $2,000,000 worth of gifts. However, that's a lifetime limit, but it goes up from year to year.

If she doesn't think she's going to get a bit inheritance or any large gifts anytime in the future, and she's not fairly well off as it is, she may want to just take it. On the other hand, if she's due to get a big inheritance, or further gifts in her lifetime, she's probably better off taking it in the form of a trust, where it won't apply against her lifetime limit on unified credit. You probably want to talk to an accountant and an attorney for an amount of money like that, before it's given to her, so she can make arrangements for it to be put into a trust if she wants to.

tech_hunter

You see now this is the stuff wanted to know And yes She is in the US

Doc

A tax attorney should be able to help, but I'll be they are swamped this time of year.

If she keeps most of it invested and the market does okay, she should be able to make back whatever was taxed in less than 5 years.

She could live very comfortably on the interest alone as long as she keeps herself in check.

SkankPlaya

In my semi-informed opinion I'd say, ask the family not to distribute it all at once like that so you can avoid taxes, or to put it into a trust that'll pay out to them over time.

Plutonium

With a chunk of money as large as that, my best advice would be to find a professional who deals specifically with these things.

Sarcastro

Plutonium wrote: »

With a chunk of money as large as that, my best advice would be to find a professional who deals specifically with these things.

So true - anything over 100K needs a specific kind of dude to deal with it, and you will save more by hiring said dude then you would lose by just going on love.

Speaking on a behalf of a limited knowledge of Canadian tax law (just finished up dealing with family inheritance myself) most of the loopholes take place before the wealth is distributed. My family, for example, is set up as a corporation, where all of us have shares - like stockholders. Incoming and outgoing funds are treated corporately and fall under various business tax shelters. When my grandmother died, there was no inheritence per say, there was a redistribution of stock and investment portfolios, stock option changes and a newly elected chairman with executor status. Pretty much everything liquid was covered by this structure and only the tangible assets (house and all the stuff inside) were assigned as inheritance.

Do I know how this works exactly? No. But my family has a guy, and he's very effective.

tech_hunter

yeah so she needs to get a Guy and or a Dude Well it seems that either doing a trust or incorporating may be the way to go. From what she tells me some of the other family members are incorporating but they are getting much larger sums. So this will give her some things to ask about when she finds someone. She hasnt ever had to deal with this amount of money before and she was really worried about losing it all to taxes right when she gets it.

Thanatos

tech_hunter wrote: »

yeah so she needs to get a Guy and or a Dude Well it seems that either doing a trust or incorporating may be the way to go. From what she tells me some of the other family members are incorporating but they are getting much larger sums. So this will give her some things to ask about when she finds someone. She hasnt ever had to deal with this amount of money before and she was really worried about losing it all to taxes right when she gets it.

She doesn't have to worry about that. Even if she just takes it, it'll just eat into her unified credit, which, while it's not good, isn't that bad, either.

Talonrazor

Huh. I thought they taxed pretty heavily anything over $12,000. Interesting about the unified credit.

Make sure you get both an attorney and an account like everyone is saying well in advance. Too many people just blunder ahead with this kind of stuff and could have saved thousands of bucks just by talking to someone for a bit.

Thanatos

A tax attorney would probably be the best way to go.

A lot of them are practically accountants, anyhow.

RocketScience

Is she single?

I'm asking because it might be relevant to her tax situation. :P