How can my siblings and I set up a fund to cover mom's various expenses without worrying being subject to income taxes?

Follow
Share

My 84 year-old Mother is still working (!) part-time with a very modest salary to supplement her various savings and retirement funds. However, my 3 siblings and I would like to set up some sort of fund where we could contribute on a regular basis whatever we can afford, so there is money available for emergencies, such as the new transmission her car just needed. There always seem to be medical/dental expenses that are not covered by insurance, and she is starting to need help with cleaning her house, etc. Our brother, being the oldest and geographically closest to Mom would likely be the keeper of the fund, but we don't want to put either him, or Mom, in the position of needing to claim these contributions as taxable income. Mom and brother both live in central Iowa. Mom lives independently in her own home, and proudly so. We want to do nothing to take away that pride or independence, nor do we want her to feel that we don't trust her to take care of her own financial matters. We merely want to plan ahead and to be able to help her out as needed. Any suggestions or recommendations?

This question has been closed for answers. Ask a New Question.
2

Answers

Show:
Thanks, Jon. I was going to suggest seeing a tax professional for this. Jon has answered for you: )
Take care and thank you for being such a caring family,
Carol
Helpful Answer (0)
Report

Kudos to your mother for still working at age 84!

To create a fund you and your siblings contribute to, but are not taxed on, I recommend using a checking account that is in your mother's name, but that your brother has signing authority and check-writing authority on. Contributions you each make to the account are not taxable to you for income taxes, and the interest earned while the money is in the account will be taxable only to your mother.

There will be no gift tax on the contributions as long as contributions from any of you don't exceed $13,000 for the year. $13,000 is the current "annual exclusion" amount- contributions over $13,000 count against your lifetime $5 million exclusion from gift taxes- and even that you can get around by paying her medical bills directly rather than giving her the money (excluded from gift tax) or "splitting the gift with your spouse.

It's not necessary to give your brother signing power on the account to avoid income tax, however him having signing power allows him to write checks to pay her bills if she is unable to. In fact, if she begins having trouble paying her bills, he can start writing checks for her.

If a lot of money may accumulate in the account, it will make sense to title the account in a way that it passes at her death in the way she wishes it to. For this she should consult with an estate planning attorney, who will recommend the best titling for her wishes and for the applicable state laws. The siblings should also be part of this discussion- and should be in agreement on how contributions to the account may be distributed at your mother's passing. For instance, if one sibling contributes a lot more than another, but at her passing each gets an equal amount of the account balance, the sibling that contributed more may feel this is unfair. Avoid any bad feelings by working this out in advance.
Helpful Answer (1)
Report

This question has been closed for answers. Ask a New Question.
Related
Questions