Revocable Trust - Want to Reduce Value (spend money now) to lower taxable value

by M. Evans

My Grandmother and I met with an Attorney to make changes to her Revocable Trust this week and we learned about a "new" tax (last meeting was 11 years ago) if the value of the trust is over $1,000,000. I assume this is similar to the Estate Tax I read about for any trusts over $1,000,000.

I am currently the main beneficiary of the Trust and stand to inherit about $900,000 once the other heirs are paid out there shares (which include houses, jewelry, annuities, mutual funds, cash accounts, etc.) Total value of the trust is about $1,300,000.

My question: I want to buy a house and my grandmother is willing to give me to money to pay in full in order to reduce her trust value but also benefit me while she is still living.

So let's say she gives me $400,000. I understand that if she gives me any amount of money over $13,000 in one year, she has to pay taxes on it. I was thinking of having her give me the money as a "loan" to my company that would then purchase the asset through my LLC. I would make loan payments until her death at which time there would be no creditor that I would owe the money to so I would in essence keep the house and owe nothing on it.

This way, she can still get the income off of the money she has invested, but when she passes, I would no longer owe the money and own the house, but not through inheritance.

I obviously want to do this on the up and up but also want to accomplish lowering the value of the trust to under $1,000,000, provide her with interest income on her money while she is alive and also own my own home when she passes.

Any suggestions or advice would be greatly appreciated.

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Jul 22, 2010
LIfetime Gift Tax Exclusion is $1 Million in 2010
by: Mo Johnson

I don't think the loan idea will work. Assuming the loan is a valid arms-length transaction, that it would still be owed by you to her estate after death. So, you wouldn't be able to just walk away from it.

However, there is a lifetime gift tax exclusion up to $1 million. So, assuming your grandmother hasn't used the exemption already, she should be able to give the $400,000 to you with no gift tax or estate tax consequences.

You can read more about a similar situation at estate being gifted to children.

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