Giving money to a child, a loved one, a relative or a friend – your intentions do matter

Is it a Gift or a Loan? Your intention matters for your Estate Planning

Have you ever given your child money to help them with school or a car or rent? How about loaning money to a friend? Is the intention to give a gift or a loan? How these transactions affect your estate planning may not be your first thought, but a good estate planner will take these transactions into account.

A transaction is a gift under section 2512(b) of the Code whenever there is a transfer for less than adequate and full consideration. If you never expect the other person to pay you back, then the transfer was a gift. At this stage it is important to remember that a gift should be properly reported on a gift tax return. Now what if you have made a large gift to one of your children during your lifetime, but you would like to treat your children equally upon your death? You may wish to acknowledge in your will or trust the gift you made to your child during your lifetime as an advancement of that child’s share. This would reduce your child’s share by that amount and give that same amount to your other children.

Another way to address this is to give a compensating amount to your other children in your will or trust. If the goal is to make sure that your children feel they are being treated equally, then it would be a good idea to address it in your will or trust.

Conversely, you may consider characterizing the gift as a loan instead. If you choose this option, no gift tax return needs to be filed, and you would not need to acknowledge the gift as an advancement or give a compensating amount to your other children. However, a provision should be made in your estate plan in the event the loan is still outstanding at the time of your death.

If someone is indebted to you at the time of your death, that debt becomes an asset of your estate once you die.

There are many options on how to handle such a scenario, but a good estate planning attorney will inquire as to whether you have made substantial gifts or loans to individuals or institutions, and how such transactions should be integrated into your estate plan. Leaving these issues unresolved leaves beneficiaries in the difficult position of figuring out your intentions and may even lead to litigation. It is best to consult a lawyer before giving or loaning someone a large sum of money, and to plan ahead by addressing these issues in your estate plan. Guidance from a competent attorney can save you emotional stress and legal headaches down the line.

Please do not hesitate to contact the attorneys Bart Chepenik, JD, LLM, 305-613-3548 or Brad Trushin, Esq. 305-981-8889 of Chepenik Trushin LLP, who are ready, willing, and able to assist with your estate planning, trust administration, Medicaid planning, elder law, will contests and probate litigation needs.

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