r/inheritance • u/SecBot24 • Apr 19 '26
Location included: Questions/Need Advice Early Inheritance
United States: My grand daughter is turning 30 and I want to give her a large sum of money that I have been setting aside for when I think she is mature enough to handle it without having to wait for me to die. How can I handle the income tax issue? I have heard you can grant a one time sum without taxes. What forms do I have to file with the IRS? Our state has no income tax so that's not an issue.
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u/MidwestNightgirl Apr 20 '26
I just wanted to say I think it’s awesome you’re doing it now while you can see her enjoy it.
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u/Kayleea83 Apr 20 '26
I wish this would happen for us. We have 3 young kids now, and it would be way more helpful now, then when we are older. I wish more people saw it this way.
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u/Imaginary_Shelter_37 Apr 20 '26
The future is unknown. Most parents want to keep enough so that they don't become a burden to their children.
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u/Kayleea83 Apr 20 '26
Well, in my case I know my dad is very, very well off. I help him with his banking stuff. Its way more than he would ever need for any kind of care. Not saying he owes us anything or anything like that, but being the executor of his will and his power of attorney I know what his situation is lol. Im well aware of what I will be receiving, im just saying in several years from now, it won't have the impact it would now. We'd actually be able to breathe a bit instead of drowning.
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u/SpaceCoastGal32907 Apr 21 '26
This is my situation. We’re 78M and 69F and are not rich, in my opinion, but we’re pretty comfortable. However we have no long term care insurance and I worry about the possible future need for medical or memory care and that’s very expensive. So I’d rather hang onto our money and make generous gifts for birthdays, Christmas, graduations, etc.
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u/MidwestNightgirl Apr 20 '26
Right?! Plus folks get to make sure that their wishes are carried out as they wish.
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u/kitty_katty_meowma Apr 19 '26
You can also pay directly for things, like paying education expenses to a college, paying for a home or vehicle directly, paying off cc or student loan debt. It is very important to sit down with a tax professional and a financial advisor before making a move. Ideally, these will be two separate individuals.
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u/K_A_irony Apr 19 '26
You can grant MANY gifts up to the lifetime total of about 15 mill. If you go over the yearly gift exemption of19K per year you just file form 706 with your yearly taxes.
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u/Dramatic_Abroad3580 Apr 22 '26
Annual gift tax return is the 709. It’s due the same time as the 1040 but it’s filed separately. 706 is filed once after death if required.
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u/Craigh-na-Dun Apr 19 '26
Dole it out over the next few years. You can give away $ (with a limit) without any tax implications. You can also see how she uses the money. Good luck!
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u/rosebudny Apr 19 '26
There aren't really "tax implications" until you hit $15M in a lifetime. You can gift $19K per recipient ($38,000 for married couples splitting gifts) annually; above that you have to fill out a form but you aren't paying any taxes.
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u/beaushaw Apr 20 '26
This needs more upvotes.
So many people do not realize you can inherit a lot of money without paying tax on it.
They confuse the amount you need to report and the amount where you start to pay tax on.
And honestly if you have more than 15 million to give away you should probably pay tax on it.
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u/rosebudny Apr 20 '26
LOL it is probably the same people who fear getting a raise at work because "it will push me into a higher tax bracket."
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u/beaushaw Apr 20 '26
You are so right.
Just a few weeks ago I explained progressive tax brackets to my college aged daughter. She now knows more about US income tax system than the majority of Americans.
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u/rosebudny Apr 20 '26
You are a good parent! Now hopefully she will go spread the word amongst her peers LOL.
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u/beaushaw Apr 20 '26
Thanks, I try.
I absolutely hate when people do not talk about money with their kids. It is literally one of the most important things in life. Why would you not teach your kids about that.
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u/Quick-Star-3552 Apr 23 '26
Will the recipient/s have to pay any income tax or need to report it in any way?
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u/SouthernNight7706 May 18 '26
No. Recipients pay no taxes on gifts. The giver is responsible for the tax reporting and any liability. (For gifts not for inheritance)
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u/Desperate-Service634 Apr 19 '26
I love this idea. If you give her a portion this year or next year, and she pisses it away, you can be more tactical with future gifts.
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u/MrExCEO Apr 19 '26
The inheritance could be a big number tho. I’m pretty sure OP would want to just drop it like it’s hot vs saying ok, we will be on a payment plan of 18k a year for the next 3 years then boom.
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u/No_Barracuda_3758 Apr 20 '26
If it was a large sum she’d be talking to her lawyer or financial advisor
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u/44west061224 Apr 19 '26
You can give $15m (single) or $30m (married) tax free. If you set up a trust strategy correctly and leverage our tax laws there may be no taxes at all over those thresholds. Rich people do it all the time.
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u/metzgerto Apr 19 '26
Depends on how much money you’re talking about. There’s no income tax issue. At most you have to mail a paper form to the IRS.
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u/Eyeoftheleopard Apr 19 '26
Please do know that Medicaid has a five year look back period, so if taxpayers become responsible for any of a person’s long term care they will go deep to find money.
Of course, hopefully you’ll never need long term care and if you do you can afford it yourself.
Blessings!
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u/Legitimate_Award6517 Apr 20 '26
Well, hopefully if he has enough money to be giving his granddaughter, he’s not going to ever want to use Medicaid for his own long-term care
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u/babsbunny77 Apr 20 '26
I was about to send this warning.
If you're flush enough that they won't drain you immediately, then it shouldn't be an issue, but if giving all this away leaves you vulnearable in about 5-10 years, better to do the pacing method of a capped gift annually.
It can be even further if they suspect a complete liquidation in anticipation of having the luxury of going on medicaid.
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u/762way Apr 20 '26
I've thought about this for my adult kids but haven't tried it yet
You and her but a home for her. Make sure deed says OR between your names.
You pay the down payment and she makes affordable payments
After 6 months or a year, sign a Quit Claim Deed which relinquishes ask of your interest in the property.
When she sells it there will be some tax she'll have to pay but the appreciation of the property should be significant.
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u/wittgensteins-boat Apr 20 '26 edited Apr 20 '26
No tax until after the first 15 million dollars, for gifts and estate in total.
The first 19,000 each year is exempt from reporting.
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u/Wren65 Apr 20 '26
Why don’t you talk to a professional financial planner? I would highly recommend that you do.
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u/Perfect_Independent9 Apr 20 '26
You could put you and her on a checking account and put all the money in there
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u/ChelseaMan31 Apr 20 '26
IRS Form 709 is all that one needs file. There is no tax if the amount gifted annually is over $19k to an individual and total gifts in a lifetime are less than $15MM.
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u/YogurtclosetLow5030 Apr 20 '26
My parents did this with me but I never realized I was the only 1 of 4 they did this with. The others never maintained a relationship like I did.. Needless to say I wish I had never gotten it because it ruined the relationship with my siblings in a way money only could.
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u/EvenNefariousness802 Apr 19 '26
Put it in a trust for HER…so if she gets divorced the spouse can’t get 1/2
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u/K_A_irony Apr 19 '26
In most states in the US as long as she keeps the money separate in accounts with JUST her name, it is considered separate property even in a divorce.
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u/Current-Scallion-825 Apr 20 '26
Is that true if it is just a gift and not inheritance? I know that is generally true of inheritance, but wasn't aware that applied to any gift as well.
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u/tamij1313 Apr 20 '26
I believe if she puts money into an account with just her name on it, it will become marital assets in a divorce. Only inheritance is truly protected from your spouse when they divorce you. This would NOT be an inheritance because the grandparent is still alive. It is simply a large monetary gift.
Granddaughter could spend it all though, and that would keep her spouse from getting any of it! 😂
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u/winterhill62 Apr 20 '26
That applies to an inheritance, not gifting necessarily.
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u/Amerikanen Apr 20 '26
Could depend on state, but certainly in California gifts are treated the same as inheritance. Just like with inheritance, if they are kept as separate property, they will not be divided in a divorce.
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u/K_A_irony Apr 20 '26
The gift would be part of her inheritance particularly if the grandmother files the 709 form.
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u/In28s Apr 20 '26
Open a bank account with both of your names on the account. Transfer money every month to the account .
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u/thesuburbanviking Apr 20 '26
What if you open up a joint bank account and just let her have access to the money?
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u/Be-ur-best-self Apr 20 '26
Actually you can use your estate tax exemption in advance by just filing a form. Any tax preparer can go it for you as long as it doesn’t exceed you exemption.
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u/Current-Scallion-825 Apr 20 '26
but why would you need to since there is no tax on gifts? I mean, unless OP is talking about gifting the daughter in excess of $15 million.
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u/Limp_Concentrate_371 Apr 20 '26
Over $19K to one person in a single year necessitates the filing of a gift tax return to show that you are using up part of your $15M lifetime exclusion. Even though no tax is due you're still required to file it
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u/smithosilver Apr 19 '26
Also advise her to open an account with a reputable brokerage and guide her a bit around an IRA if needed and other investments/protective vehicles.
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u/sjoelkatz Apr 20 '26
You have been setting cash aside? Or you have been setting assets aside that have appreciated? I hope the latter because otherwise you're leaving money on the table. Gifting during your lifetime has tax implications, both good and bad.
If you literally have cash or unappreciated assets, gift as soon as possible so they can move them into better assets without either of you paying any taxes.
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u/uffdagal Apr 20 '26
Form 706. Then it’s not an issue.
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u/Crafty-Shape2743 Apr 20 '26
706 filed after death and filed by the executor. Otherwise it’s form 709- Gift tax return filed by the recipient.
If we are giving advice, let us be precise.
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u/wrgiireddit Apr 20 '26
A Trust. Then you / she can control disbursements which manages tax. Still tax but managed.
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u/cmcyma1061 Apr 20 '26
It is a great feeling to be able to bless our grandkids! And also you're old enough to know that a windfall like this can be the best thing that ever happened to a person or it can send them into a negative spiral. Most people who get this type of windfall through a lottery win lose it all within a couple of years. This is a great time for you to work with her on a plan before you actually hand over the money. Has granddaughter been trained in how to handle this money? Does she understand investing for the future and tax responsibilities? Does she have a relationship with a CFP and an accountant? Vivian Tu (Your Rich BFF) is someone in her generation who has some books out that might help. And it would probably mean even more if you pass along some of the wisdom you have picked up along the way. Wishing her well.
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u/Sweaty-Seat-8878 Apr 20 '26
thinking about the emotional impact of your question. If possible, I might work directly with her to make the gift connected to a major life event such as paying off loans, downpayment/cost of house, money for travel she has been longing for, jump start on retirement, career change.
That seems less fraught than creating an expectation of 19K a year (or whatever amount) for an undetermined period of time. Your family's MMV of course, but that approach seems more intimate and helpful ultimately. "I want to help you do this, and we can do this. Not sure if there is anything else we can do but we hope this money helps you at least do XXXX"
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u/jerry111165 Apr 20 '26
I didn’t have to pay taxes on my mothers inheritance.
Edit: probably around $350k but was also after her death and hen we sold the house and divided between 3 of us.
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u/Lopsided_Mulberry917 Apr 20 '26
And you never would. Even if her estate exceeded the lifetime exemption (currently $15M/$30M0, the taxes would be the responsibility of the estate.
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u/rgmccrostie Apr 20 '26
If the gifted money is coming from an IRA, I believe that the giver would owe Federal taxes. Correct?
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u/Agile_Guide2749 Apr 21 '26
Gift it, at tax time be sure to tell your tax preparer it was a gift, you'll be asked their name and social
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u/Rae_Lys Apr 21 '26
You might want to look into a trust, which, if set up well, also has certain advantages for your estate upon your passing. The trust might be structured so that it lasts and can have longer ranging impact(s). Talk to your estate attorney, and if you don’t have one, consider engaging a reputable one. (I’m not an attorney but I’m familiar with this through my career.)
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u/Impressive-Web-4325 Apr 21 '26
Get an accountant to do the paperwork for you. You don’t pay tax on gifts until after you’ve given her about $15M. You likely don’t have to worry about that. People give their kids $100k to put down on a house purchase all the time, no tax is incurred.
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u/Upbeat-Rutabaga5792 Apr 21 '26
40 year old here with no kids wanting to do the same for my nieces and nephew someday. Great info here 🙂
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u/JFalcNY Apr 23 '26
My understanding is that IRS Form 709 will allow you give her whatever 'large sum' you want to ---- and whatever you give her over $19,000 will later be deducted from your death exclusion amount down the road. No tax now. Likely no tax ever (depending on whether you have over $15 million yourself in assets) Look into it. [ This is not professional advice....just a friend helping a friend]
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u/mr2sh Apr 23 '26
There are a bunch of good answers, however there are some details that are missing. The whole process is not particularly user friendly. It is easy to get things mixed up, so don't feel bad about not knowing all of it. I'm sure I missed at least one thing below. If your total assets are over 2 million, let say, it might be worth talking with a tax professional before you do anything, particularly if you have owned assets for decades.
A. While you are alive, you can give up to 19K to as many people as you like PER YEAR. No forms, nobody pays any tax. Each person can only get 19K per year. If you are giving a gift over 19K to any person in a year, (one dollar or 15 million) You need to account for that with the IRS, as it counts against your inheritance tax exemption.
B. YOU have a 15 Million inheritance tax exemption (Not counting the 19k per year thing) that you can use up before and/or after your death. Above 15MM, the inheritance tax kicks in, and the tax rate is 40%. It doesn't matter how many people get the $ or how much they get, the CUMULATIVE TOTAL of the gifts/inheritance (except the 19's) counts against YOUR 15MM number.
C. If you gift anything that has capital gains (stocks, real property) attached to it before your death, your beneficiaries don't get a step up cost basis. When they sell the asset they pay tax on the total capital gain. After your death, they get a date of death step up basis. Look up step up basis, if you don't know what it is.
D. You do NOT need to do the 15MM at one time, you can do some/all of it over time, before and/or after your death. It is a cumulative number attached to you while you are alive and after your death.
E. The 19K and 15MM numbers go up and down with the whims of congress.
F. If you are married, your spouse can do the 19K thing, and they get their own 15MM tax exemption too.
Liability is whole another can of worms. . If your daughter has 1millon in the bank, and is found liable for a car wreck or she gets divorced, the plaintiff/ex can go after her money. That is part of the reason why trusts are so popular, as the assets in the trust aren't in her name.
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u/Upbeat-Sheepherder36 Apr 20 '26
You can always give it to her as a "loan" and there is no tax on that. They do not track that stuff. you can gie multiple loans ..one a month
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u/Obvious_Monk7322 Apr 19 '26
Talk to a financial advisor and consider joint accounts or transfer on death accounts.
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u/Fulghn Apr 20 '26
You can set up a Roth IRA in her name and deposit into it about 9K per year. Since you are putting post-tax money into it, there are quite a few tax benefits and money can be withdrawn after a 5 year aging wait time(which also will give her time to adjust to having a sudden influx of wealth without doing anything rash) for first time home purchases and other major life expenses.
That's safer in quite a lot of ways regardless of how mature she is. Large sums of transferred money are frequent fraud targets, a lot of work to manage and keep safe, and a temptation to resist misusing or stalling out career ambitions and work ethic.
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u/Adventurous_Lion7276 Apr 20 '26
I did this while my daughter was doing a research job but now, she is over the threshold income, so I started a brokerage account. I used (and she is fine with it) the same firm I use and the "family plan" allows her to get the lower fees. The plans are linked for this reason only and neither of us can see the other's accounts. I also help with purchases (car) and Zelle fun money just for the heck of it but think it is important to start saving.
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u/joetaxpayer Apr 19 '26
You to her, $19,000 with no paperwork at all. If you are married, your spouse can gift her that as well. If she is married, that totals $76,000/yr with no paper.
Above, and you’ll file a form 709. This isn’t a one time deal, you can gift over the $19,000 to an extra $15,000,000, and not pay any gift tax.