Tax Laws Don't Kick In Until Gifts Exceed $11,000 in a Year
Question: My son died 18 months ago. He left behind his fiancee and twin girls. My husband and I are separated and each received $25,000 from our son's life insurance policy. We are both very close to his fiancee, who has now asked whether she could have $10,000 from the life insurance proceeds. She would use it to have new siding put on the house, which desperately needs it. I have no problem with helping her, but I wonder what tax implications I will have. Earlier this year I gave her $5,000 toward the purchase of a new car.
Answer: Don't let tax worries prevent you from helping your grandchildren and their mother. Unless you plan to give away more than $1 million in your lifetime, you won't face any tax implications for your gifts.
You're allowed to give $11,000 a year to anyone you choose without having to file a gift tax return.
You don't actually owe any tax until your gifts, above that $11,000 threshold, total $1 million per person.
In other words, your $10,000 gift, added to the $5,000 you've already given her, would require the filing of a gift tax return with the IRS, because your total gifts for this year would exceed $11,000. But only $4,000 would be subtracted from your $1-million lifetime limit.
If you don't want to bother with a gift tax return, you might give $6,000 and ask your husband to chip in the rest.
You also might consider giving her the rest of the money, either now or over the next few years. Chances are this policy was purchased for your son by his employer, and your son never got around to changing the beneficiaries when he started a family. Unfortunately this happens far too often. People marry, divorce or have children but forget to update the beneficiaries on their insurance policies and retirement accounts.
You're not required to give up the money, of course, but a single mom with two children certainly could use all the help you're willing to give.
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State's Property Laws Decide Entitlement
Q: What advice do you have for someone whose spouse brought investments into the marriage that have doubled in the last 10 years, but are still in the spouse's name alone? My spouse's children are named as the only beneficiaries on the accounts, which include annuities and life insurance policies. Because this amount of money is large, am I entitled to any portion of it upon death or divorce?
A: The answer depends on the type of accounts and where you live.
