Gifting money from a parent to son or daughter

[curb1]

What is the name of your state (only U.S. law)? Oregon

I have a simple question that I didn't know which forum this would apply. When a parent puts a child's name on a bank account, does this immediately become a gift to the child? I think it would be a gift since the child could (absent of written restrictions) immediately have access to the account.

 

[tranquility]

What is the name of your state (only U.S. law)? Oregon

I have a simple question that I didn't know which forum this would apply. When a parent puts a child's name on a bank account, does this immediately become a gift to the child? I think it would be a gift since the child could (absent of written restrictions) immediately have access to the account.

Treas. Reg. § 25.2511-1(h)(4)

(4) If A creates a joint bank account for himself and B (or a similar type of ownership by which A can regain the entire fund without B's consent), there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn without any obligation to account for a part of the proceeds to A. Similarly, if A purchases a United States savings bond registered as payable to “A or B,” there is a gift to B when B surrenders the bond for cash without any obligation to account for a part of the proceeds to A.

 

[curb1]

Thank you. That makes it very clear. This situation has occurred because a father wants to give son $450,000 to buy a house. The son will rent it back to father as long as he lives. It is an unusual situation.

 

[tranquility]

Thank you. That makes it very clear. This situation has occurred because a father wants to give son $450,000 to buy a house. The son will rent it back to father as long as he lives. It is an unusual situation.

Property has different rules. The rule quoted has to do with cash and similar things.

 

[Zigner]

Property has different rules. The rule quoted has to do with cash and similar things.

Once kiddo pulls the money out to buy the house, then the money has been gifted to kiddo.

 

[tranquility]

Once kiddo pulls the money out to buy the house, then the money has been gifted to kiddo.

Maybe, it would depend on the facts.

to the extent of the amount drawn without any obligation to account for a part of the proceeds to A

It could be a loan.

 

[Zigner]

Maybe, it would depend on the facts.

It could be a loan.

Thank you. That makes it very clear. This situation has occurred because a father wants to give son $450,000 to buy a house. The son will rent it back to father as long as he lives. It is an unusual situation.

curb1 stated that the money is intended to be a gift.

 

[tranquility]

curb1 stated that the money is intended to be a gift.

I make a good living, in part, on finessing that very question.

 

[curb1]

The father is a beneficiary of his mother's estate. Good guy but has a poor record of handling money and he knows it. He isn't in debt but has never had much. Son is successful and thought this rental (back to father) would yield better benefits from taxes than for the father who has about $35,000 income. I got a call last night from this person (a distant relative) and I couldn't see any problems with the plan although it caught me by surprise and I have not ever run across a similar situation. There is absolutely no discord in the family and it was the father's suggestion.

 

[tranquility]

The father is a beneficiary of his mother's estate. Good guy but has a poor record of handling money and he knows it. He isn't in debt but has never had much. Son is successful and thought this rental (back to father) would yield better benefits from taxes than for the father who has about $35,000 income. I got a call last night from this person (a distant relative) and I couldn't see any problems with the plan although it caught me by surprise and I have not ever run across a similar situation. There is absolutely no discord in the family and it was the father's suggestion.

If filing a gift tax return is a problem, see a professional. This seems something that can be papered around to make no return required. But, does the purported gifter really care? Will there be an inheritance tax on his death? It will cost more to "finesse" the issue than it will to file a return. For money? The return is so simple so as to think anyone who is smart enough to earn such wealth is smart enough to fill in and file.

 

[LdiJ]

The father is a beneficiary of his mother's estate. Good guy but has a poor record of handling money and he knows it. He isn't in debt but has never had much.

So far it makes sense.

Son is successful and thought this rental (back to father) would yield better benefits from taxes than for the father who has about $35,000 income.

This is where it starts falling apart a bit for me, morally. If dad is gifting son the money to buy a 450k property dad ought to be getting a life estate, not a lease where he has to pay rent.

I got a call last night from this person (a distant relative) and I couldn't see any problems with the plan although it caught me by surprise and I have not ever run across a similar situation. There is absolutely no discord in the family and it was the father's suggestion.

I agree with the others that there really is no legal problem with this and it should not generate an actual gift tax as its well below the lifetime exclusion for gifting, but I do hope that the whole "rental" issue is just symantics rather than an indication that dad would actually have to pay rent to son, because that would be a bit repugnant to me, morally.

 

[curb1]

The goal is to make this as simple as possible. I suggested (and all involved agree) that father gifts son enough to purchase the house (which will be about $200K) and keep about another 100K. Then leave the remainder, whatever they decide, for Dad. They would keep the rent on the low side. Also, they realize that it is easy to gift back to the Dad if necessary. This is completely transparent between son and Dad.

 

[LdiJ]

The goal is to make this as simple as possible. I suggested (and all involved agree) that father gifts son enough to purchase the house (which will be about $200K) and keep about another 100K. Then leave the remainder, whatever they decide, for Dad. They would keep the rent on the low side. Also, they realize that it is easy to gift back to the Dad if necessary. This is completely transparent between son and Dad.

Again, tell me one good reason why Dad should have to pay any rent at all? The son is going to own a valuable property that he did not pay for. The least he can do is give dad a life estate.

 

[Zigner]

Again, tell me one good reason why Dad should have to pay any rent at all? The son is going to own a valuable property that he did not pay for. The least he can do is give dad a life estate.

That's a moral consideration, not a legal one. If the two parties agree to rent, then rent shall be paid.

 

[LdiJ]

That's a moral consideration, not a legal one. If the two parties agree to rent, then rent shall be paid.

True, but I did make it clear in one of my previous responses that I was responding on a moral basis.