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