INDUSTRY INSIGHT
YOUR RETIREMENT
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“ Money, Like Water, Never Flows Uphill”
In my over 30 years of practicing as a CPA and Financial Advisor, I have noticed a disturbing trend involving the issue of gifting. I have been contacted numerous times by my retired clients asking me to sell an investment for them so they can make major gifts to their children or grandchildren. I can understand and admire these individuals who have a big heart and want to be generous to their children and grandchildren. However, I have also seen situations where the gifts were the result of emotional blackmail or worse, bordering on financial elder abuse. For example, I know of occasions where an adult child has told their parent that their grandchild needs braces, an IPad, a car, etc. If the retired person hesitates at the amounts involved, they were told they would never see the grandchild again if they did not give up the money. An adult child telling their parent that if they do not receive the gift of a car that they will not take them to the grocery store every week. Just imagine being in the elder person’ s position.
I have also seen situations when after the death of her husband, a retired widow is approached by her children and asked to sign over the deed to the house and make cash gifts to save on inheritance taxes. The widow, often in her state of grieving over the loss of her spouse and wanting to pacify her adult children, will comply with their requests. Unfortunately, those types of gifts come with a variety of potential problems. Such as:
• Does the widow have written assurances that she will always be able to live in the house as long as she wants?
• Has the property been appraised?
• Has a gift tax return been filed?
• What is the financial status of the children?
• Could there be an upcoming divorce putting the value of the parent’ s home in marital asset discussion?
For 2016 any gift to a person in excess of $ 14,000 requires the filing of a gift tax return. While there may not be any tax liability to the donee or donor, there are still reasons to have one filed. The value of the gift may be an issue if proper appraisals and documentation are not obtained.
While the issue of gifting itself has many potential consequences for tax, estate, healthcare and Medicaid issues, there are other considerations in the gifting process.
• What if the donor lives a long and healthy life and they feel the impact of the inflation?
• How will they be taken care of if long-term care needs arise?
• How will they afford to make repairs to their home or automobile?
• How will the costs of healthcare be covered?
In my experience, I have only ever seen the gifts come from the parent to the child and very rarely seen the child gift back to the parent if help is needed later.
Before any gifting is done, I strongly advise the donor to consult with their Financial Advisor and Attorney to assess the implications of gifting property, investments or cash to other family members. If the donors should ever need the money down the road, will they get it back? Remember, money, like water, never flows uphill.
The opinions voiced in this material are for general information only and are not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Securities offered through LPL Financial, member FINRA / SIPC.
This Industry Insight was written by Edward J. Harris, CPA. For more than four decades, Edward Harris has provided his clients with professional service in wealth planning, investments, tax planning and preparation, as well as estate planning. Ed is fully licensed as a Certified Public Accountant and LPL Investment Advisor Representative. To maintain his licenses, Ed upholds high ethical standards and meets the profession’ s rigorous requirements for ongoing education. He has access to variable annuities as well as accident, health, and long-term care insurance. For more information contact Edward Harris at 724.942.3300 or visit www. harriswm. com.
Brentwood-Baldwin-Whitehall | Summer 2016 | icmags. com 33