Buying Shares by Parental Proxy

[Tim]

my experience of the financial world is that there are 2 major misunderstandings about the IRS:
1. it's an evil faceless machine that exists to ruin your life
2. "they could never prove that...." when in reality they don't have to, you are guilty until you prove innocence which in this case would be nearly impossible

Gift what you want, no strings attached. Parent's raise kids and give tons, no strings attached. Let the returns and taxes fall where they may.
The second wife might take it all or a bad divorce etc.

If it comes back, congratulations.

[sealion1]

Over the course of 25 years, for example, you’d potentially be avoiding LTCG tax on almost $3M. Not trivial.

Who cares how old you are when the money comes? You still have to spend money when you’re 70…

I guess my point here is that this parental piggy bank is not money you can count on since you don’t know when parents will pass away. So it’s just extra play money. Sure you need money to spend when you’re 70, but the whole point of this exercise is that this money won’t be necessary money. Maybe your parents will live till you are 80?

I guess if you KNOW there’s something you’re gonna want for 3 mil when you turn 70 that you don’t want to pay taxes on… it makes sense to do it for 25 years?

I suspect for most of us on wci, that estate will simply go into an already large retirement fund which would get passed on to children so essentially doing step up twice.

It all checks out numbers wise and if relationship with parents are right. I just don’t think it’ll actually provide any quality of life benefit by the time the money is accessed

[sealion1]

Also this money would only have value if you intend on spending down every last dollar of your own retirement accounts

[Dusn]

Or laws could change over the decades before they die and this plan no longer works. Unless they die soon, in which case there’s not much gain to begin with.

Or if you yourself end up with extra money after you die then this was all a waste of time because your kids would get a step up in basis on the money anyhow (all your money is fungible). You’d really need to perfect the “die with zero” strategy.

[afan]

If instead of giving them a small amount each year, you give them a large amount at the start, this could work even if they do not live long after the gift.

You have $5M in low basis stock, cost, say, $500,000 when you bought it. If you were to sell, then you would owe cap gains tax on $4.5M.

Instead, you give it to your parents. Sadly and unexpectedly, they die a year later. You now inherit $5,250,000 after 5% growth. All stepped up. You could sell the entire amount with no CG taxes.

This could work if your parents are so well situated that there is no plausible scenario under which they would need or want to spend the money but they are not so rich as to have a taxable estate. And of course, you are completely confident that they will adhere to the unwritten agreement to leave it to you.

It would be simple to avoid family conflict. You gave some money to them. They put it in a separate brokerage account with you as the beneficiary at their death. They never put in any of their other money. You get the amount you originally gave them, plus any growth.

The shorter the time between the gift and their death, the more interesting the IRS might find it. Even more sadly, your parents are in a car wreck on their way home from their 30th anniversary dinner. While they are in the ICU, you tell the docs to keep them on life support long enough to complete the gift. They "die" a day after the transfer and you sell the stock. IRS gets snippy.

[jfoxcpacfp]

If instead of giving them a small amount each year, you give them a large amount at the start, this could work even if they do not live long after the gift.

You have $5M in low basis stock, cost, say, $500,000 when you bought it. If you were to sell, then you would owe cap gains tax on $4.5M.

Instead, you give it to your parents. Sadly and unexpectedly, they die a year later. You now inherit $5,250,000 after 5% growth. All stepped up. You could sell the entire amount with no CG taxes.

This could work if your parents are so well situated that there is no plausible scenario under which they would need or want to spend the money but they are not so rich as to have a taxable estate. And of course, you are completely confident that they will adhere to the unwritten agreement to leave it to you.

It would be simple to avoid family conflict. You gave some money to them. They put it in a separate brokerage account with you as the beneficiary at their death. They never put in any of their other money. You get the amount you originally gave them, plus any growth.

The shorter the time between the gift and their death, the more interesting the IRS might find it. Even more sadly, your parents are in a car wreck on their way home from their 30th anniversary dinner. While they are in the ICU, you tell the docs to keep them on life support long enough to complete the gift. They "die" a day after the transfer and you sell the stock. IRS gets snippy.

This sounds creepy to me, all these death plans. I get where you’re going but for you to gift them a chunk of money only for them to put it in a separate brokerage account with the OP as beneficiary is de facto evidence of strings attached. Would never recommend to a client.

Look, many of you guys seem to be trying to get around the NO STRINGS ATTACHED part of the definition of a “gift”. If one parent dies and they remarry someone with kids and they decide to share with the kids, you have NO SAY because you GAVE THE MONEY TO THEM. Even if they don’t, a gift is a gift. Just stop.