Looks like I'm in need of some financial advice. To make a long story short our son was in a motorcycle wreck and left us last Thursday. He had been married 3 weeks and had a baby on the way, due any time now. He had made me the beneficiary of his military life insurance and hadn't changed it to his wife, who's also in the Az Nat. Guard. We want her to get the money, but the IRS will look at it as a gift, hence up to 50% tax. It is a substantial amount. I set up a joint acct in Az with her and I on it and the first check made it there today, but we've talked to several financial folks and have got several different answers. We were told we could give her up to $14K each, my wife & I, for $28K per year.

Any ideas? And thanks, this is a rough time and this dilemma isn't helping.

So sorry for your loss!

Thanks, I'll post some pics later. He was a hell of a kid.

Sorry for your loss. That's so sad.

I'm not an accountant or tax expert, but here's an idea to discuss with an expert: consider giving annual gifts up to the IRS threshold to both your daughter-in-law and your grandson - see what the implications might be.

Very sorry for your loss.

I would encourage you to speak to an attorney who specializes in probate. They should be able to help you and his wife.

You may be able to do what is called a disclaimer of the amount, in which case the money would go to his other heirs presusmably the wife. You should consult an estate attorney before you do this, or alternatively the insurance company may be able to handle this. If you already are in receipt of the funds you need to remember that you can also give your grandchild up to $14K each per year as well.

Unless your estate is well over $10MM, making a gift really wouldn't have any effect on your estate planning anyway. So maybe the gifting is moot.

So sorry to hear, may the Lord be with you. Hopefully someone can steer you right on the finances.

Thanks, guys, his wife is in Phoenix, I'm sure there's some good attys specializing in this.

It is sad, he served 2 tours with the Marines and 2 with the Az NG, came home basically unscathed. Damn bikes.

1st suggestion; Talk to someone locally. You have NO idea what (if any) the qualifications are of anyone over the internet and yes that includes me.
2nd Ask whoever you do talk to if you and your wife can make separate gifts to both DIL and grandchild for a total of $56,000 each year.

Thanks, Chris, it looks like we have a plan to meet with, or rather my DIL, a probate atty in Az. I worry we'll get pressure from her family, her dad thinks his accountant has the right answers, but taxes would amount to over 200K if not handled right. But in the end, I make the call.

Thanks for the advice and kind wishes.

So very sorry for your loss. I could not begin to imagine. Best wishes for expedient answers for the care of his family.

weaselsRus, I think Derby Dude is an accountant.

You might PM him with your questions.

Thanks JS, just sent him a PM.

Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

1.Gifts that are not more than the annual exclusion for the calendar year.
2.Tuition or medical expenses you pay for someone (the educational and medical exclusions).
3.Gifts to your spouse.
4.Gifts to a political organization for its use.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013.

What other information do I need to include with the return?
Refer to Form 709 (PDF), 709 Instructions and Publication 950. Among other items listed:

First and formost I'm sorry this happened to your family.

I hate to say it but talk to an attorney if significant amount. There is simple ways to get her the money but if its a fair amount you can bet the irs will be on it. Most life insurance proceeds are tax free but it sounds like your concerns is the beney situation and how to legally get the funds where they were intended. Remember that beneficiary designations almost always hold. Not your situation but many an ex wife has been paid out on death benefits because the guy forgot to switch to his new wife.

Not sure on the $value but you can always put a bunch into a 529 plan for the grandkid. Course on a death benefit the family may need the money asap. Hope this helps.

Lost my uncle a few years ago to a bike crash. Your family is in my families prayers.

Seems significant to me, like 500K.

What mrmarklin said. Used to be you could decline as the primary beneficiary with no tax effect and the benefit would revert to the estate. Don't know if this could have been done retroactively before, much less now. Need to see an attorney about what can be done under current law.

I am not an attorney or an accountant. But here's what I would do.

If it's over $500k, Put the money in a trust with you as the trustee, and use the money to her and the childrens benefit. You can be creative, and legal at the same time.

the gift ceiling is $14,600/year. You and you wife could give $14,600 each (14.6 from you, and the same from your wife) to the DIL and each grandchild.

The gift givers are the ones responsible for the tax.

Triple check the above advice. A planner or trust attorney is going to want to be paid a percentage, so be prepared for that and do your homework accordingly.

If you decline the estate, there are ramifications.

I would talk to at least two different attorneys an two different accountants if you don't already have one that you really trust. I'd probably still get a second opinion.

Please accept my most sincere condolences. I can only imagine the pain this has caused you and your family. Ken

You have a different issue here that requires some expertise you are unlikely to find with even a competent tax or probate expert.

I'm guessing the life insurance is SGLI which is a little different than conventional life insurance. You'll need to request assistance through the National Guard casualty assistance officer. A military attorney is available to consult with you and the widow at no expense to either of you regarding SGLI beneficiary designations and waivers.

Best of luck.