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Inheritance / gifting question - for minors

Inheritance / gifting question - for minors

Old Nov 21st 2023, 3:56 pm
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Default Inheritance / gifting question - for minors

My wifes father just passed in the UK, they are about to close / wind up the probate and appoint all funds to her living mother.
my wife and I are resident tax payers here, currently awaiting Green card approval.
My wifes mother is planning to gift our 3yr old son yearly amounts , we are currently based in Virginia, is there a limit to how much our son's grandmother can gift to him per year without being taxed, and will this affect our tax return?. Does it have to be in any special kind of account for him?. thanks for any knowledge!
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Old Nov 21st 2023, 5:08 pm
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Default Re: Inheritance / gifting question - for minors

No US tax on your son’s receipt of the foreign gift. You do have to report any foreign gifts that cumulatively exceed $100,000 in one year to the iRS but that is for reporting only, the gift itself remains tax free. No requirements for any particular type of account for your son, and it won’t impact your tax return unless your kids have more than $2,500 of income. Google the “kiddie tax”. So long as your wife’s mother is not a US Citizen, or otherwise subject to US taxation, there is no US tax on her side. The usual UK rules will apply though.
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Old Nov 21st 2023, 5:53 pm
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Default Re: Inheritance / gifting question - for minors

Originally Posted by Glasgow Girl
No US tax on your son’s receipt of the foreign gift. You do have to report any foreign gifts that cumulatively exceed $100,000 in one year to the iRS but that is for reporting only, the gift itself remains tax free. No requirements for any particular type of account for your son, and it won’t impact your tax return unless your kids have more than $2,500 of income. Google the “kiddie tax”. So long as your wife’s mother is not a US Citizen, or otherwise subject to US taxation, there is no US tax on her side. The usual UK rules will apply though.
great info. on the note of wife appointing ALL funds to her mother, and remaining a trustee , our UK lawyer has stated "there may be US taxation or compliance issues in relation to the trust, which might be relevant even though the trust is being brought to a close".

I am not understanding that comment, if there is a need to go to a specific tax attorney is there a specific kind here that deals with these situations? I have used Turbo tax until now so we are out of touch with physical tax attorneys to date.

Last edited by hutchison; Nov 21st 2023 at 6:17 pm.
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Old Nov 21st 2023, 9:07 pm
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Default Re: Inheritance / gifting question - for minors

Originally Posted by hutchison
great info. on the note of wife appointing ALL funds to her mother, and remaining a trustee , our UK lawyer has stated "there may be US taxation or compliance issues in relation to the trust, which might be relevant even though the trust is being brought to a close".

I am not understanding that comment, if there is a need to go to a specific tax attorney is there a specific kind here that deals with these situations? I have used Turbo tax until now so we are out of touch with physical tax attorneys to date.
A lot depends upon the trust and your wife’s role in it. Is she an owner of the trust, or just a trustee? Was she entitled to any funds under the trust rules? If just a trustee then if she had signature authority over financial accounts then she should have been filing an FBAR every year. Not filing one can be a very big deal with large financial penalties for not doing so, but is fairly easy to fix with no penalty IF your wife never received any income from the trust herself and does not own it. If an owner, or a beneficiary, it becomes more complex, so let’s start with that.

On another note, if your son was to be gifted from the trust rather than directly from your mother in law that will open up a another set of forms to be filled in, so best to be sure gifts are granted after the trust is closed.

Last edited by Glasgow Girl; Nov 21st 2023 at 9:09 pm.
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Old Nov 22nd 2023, 1:47 pm
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Default Re: Inheritance / gifting question - for minors

she is only a trustee, her mother is the only other person in the trust, the trust can only have been around a few month since passing and there have been no distributions.
if she receives nothing, and closes the trust with all funds going to mother, it is sounding like at worst she may have to file Fbar with zero monies received , of which I am familiar with Fbar I file annually for us both along with our joint 1040 filing.

the solicitor also mentioned disclaiming her role as a trustee and bringing another 'trustable!' trustee onboard (u.k based) to close the trust,
She is on good terms with her mother in any case,

I am not seeing either option as any worse than the other except for reporting, in light of that it maybe easier to disclaim.

I agree on the later gifting logic.
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Old Nov 22nd 2023, 2:51 pm
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Default Re: Inheritance / gifting question - for minors

Given that she is already a trustee you are stuck with including the trust information on the FBAR for this year whether you disclaim or not. I would try and close it before the end of this calendar year to avoid having to include it on next years FBAR as well. Sounds like a fairly painless process for you since you are already doing an FBAR.
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Old Nov 22nd 2023, 3:43 pm
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Default Re: Inheritance / gifting question - for minors

we will be sure to Fbar the trust before EOB 2023, another note, given that she receives nothing from the trust in 2023 or at all, and our son does not (who IS a U.S citizen) I am not seeing any need to file 3520 as we do not meet any of those conditions, https://www.irs.gov/instructions/i35...link1000190314
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Old Nov 22nd 2023, 5:32 pm
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Default Re: Inheritance / gifting question - for minors

That sounds correct, no need for Form 3520 if your wife owns none of the trust assets and is not a beneficiary. If your son is lucky enough to receive gifts from his Grandma that exceed $100,000 in any calendar year then Form 3520 will be required in that year regardless of his citizenship.
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