Dividing inherited property among siblings

[abbey]

What is the name of your state? Texas

my two sisters and i inherited the family farm, which we are preparing to sell. the will says "i give all my property to my 3 daughters...share and share alike.." we also have a lady bird deed (reserving life estate) which states "property is conveyed in equal, undivided interests as their separate property."
i have 2 children. my sisters have none. so they have agreed to give me 1/2 (1/4 to each sister) instead of 1/3 of the farm proceeds. my sister thinks she may incur gift tax on the amount above 1/3 so she wants to divide the sale proceeds equally at closing. then gift the extra to my kids at the allowed annual rate for however many years it takes.

Question is, Do my sisters incur gift tax if we split proceeds 1/2, 1/4, 1/4 instead of 1/3, 1/3, 1/3?
does the irs.gov or other reliable site explain this clearly so i can forward answer to my sisters from this forum and from irs.gov site?
thanks, abbey

 

[LdiJ]

What is the name of your state? Texas

my two sisters and i inherited the family farm, which we are preparing to sell. the will says "i give all my property to my 3 daughters...share and share alike.." we also have a lady bird deed (reserving life estate) which states "property is conveyed in equal, undivided interests as their separate property."
i have 2 children. my sisters have none. so they have agreed to give me 1/2 (1/4 to each sister) instead of 1/3 of the farm proceeds. my sister thinks she may incur gift tax on the amount above 1/3 so she wants to divide the sale proceeds equally at closing. then gift the extra to my kids at the allowed annual rate for however many years it takes.

Question is, Do my sisters incur gift tax if we split proceeds 1/2, 1/4, 1/4 instead of 1/3, 1/3, 1/3?
does the irs.gov or other reliable site explain this clearly so i can forward answer to my sisters from this forum and from irs.gov site?
thanks, abbey

In order for anyone to have to pay gift tax, they would have to use up their lifetime exclusion for gifting, which is over 11 million dollars for 1018.

Gift tax returns (with no actual tax due) have to be filed for gifts over 15k to any one individual. However, I do not believe that your sisters would need to file a gift tax return if you all choose to divide things differently than 1/3 each.

 

[ALawyer]

Unless the interest in that family farm your sister is giving up is very valuable (such as the King Ranch, or a major oil field) and/or your sister is otherwise very wealthy, it is highly unlikely that Federal Gift Tax considerations should enter into the picture.

Whether your sister even would have to file a Federal Gift Tax return depends on the value of the interest she would be gifting. For calendar year 2018 no gift tax return need be filed unless her gift to any one person exceeds $15,000; in other words she could make gifts to 1,000 people of $15,000 each without having to file a Gift Tax Return. If your sister is married, and her spouse joins in the gift, that limit increases to $30,000 per recipient. Yet even if a Gift Tax Return must be filed, there would not be any Gift Tax payable unless the total value of the gift, plus all other reportable gifts exceeds $11.2 million.

However, she would potentially be using up some of her $11.2 million lifetime exclusion -- so that if the Federal Estate and Gift Tax laws remain constant (and they rarely do) and at her death the property she leaves (to persons other than her U.S. citizen spouse) plus to the extent the gifts she made during her lifetime (to persons other than her spouse) were in excess of $15,000 per person it is conceivable that if she dies a very very wealthy woman, some estate tax might be payable upon her death.

As a practical matter (and I am not familiar with the impact of a "lady bird deed" nor am I a Texas lawyer) it would seem your sisters are being generous in relinquishing some of the value they might otherwise have inherited. I would think would be a wise gesture (consider it an investment) to reciprocate by getting the services of a Texas lawyer or CPA to provide your sister with guidance on which she could rely, as that would likely eliminate her concerns about Federal Gift Tax.

 

[adjusterjack]

she wants to divide the sale proceeds equally at closing. then gift the extra to my kids at the allowed annual rate for however many years it takes.

Not necessary.

The three of you can give the escrow company written instructions to issue 3 checks, one to you for 50% of the proceeds and one for each of the other two for 25% of the proceeds each.

Remember "written instructions." You must put those instructions in writing to the escrow company otherwise the escrow company will just ignore any oral instructions and write one check with all three names on it. Don't sign the regular escrow instructions that are put in front of you. Make sure a new set is written to include specific instructions about how the proceeds are to be divided.

By the way, giving large sums of money to children (minors) is a bad idea. The money would have to go into a trust account for them unless you wanted to let them spend it on video games and such. Best that you get the 50% and use it to support your family.