How can I avoid paying gift tax on inheritance? 4 Answers as of December 29, 2010

My mother recently passed away. Her estate is 99% in a brokerage account where I am co-tenant with right of survivorship. I would like to pay off my sister's home mortgage from this account but cannot figure out any legal way to avoid that gift tax, even though the funds in the account were totally my mother's, not mine, and I know that her last wishes were for me to do this. Any suggestions?

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Mankus & Marchan, LTD
Mankus & Marchan, LTD | Tony Mankus
If you use inherited funds to pay off a mortgage of your sister, you, as the donor, must pay gift tax beyond the exemption allowed every year. You could consider paying down your sister's mortgage every year by the exemption amount, and therefore avoid the gift tax - although it may take some years to pay it all off.
Answer Applies to: Illinois
Replied: 12/29/2010
Givner & Kaye
Givner & Kaye | Bruce Givner
First, there is no "gift tax" on an inheritance. Second, if you are worried about an "estate tax" on your inheritance, you mother had an estate tax exclusion that might have been as much as $3,500,000. Third, if the money was left to you but you are going to use it to pay off your sister's mortgage, then the question is "how much" because you have your own $1,000,000 gift exclusion. So discuss this with your CPA. If the amount is more than $13,000 and less than $1,013,000, you will have to file a Federal gift tax return (IRS Form 709), but you will not have to pay a gift tax. Best regards.
Answer Applies to: California
Replied: 12/21/2010
LT Pepper Law
LT Pepper Law | Luke T. Pepper
If the brokerage account was in your name as well then you own the proceeds of the account. It would be difficult to avoid the gift tax paying off the mortgage since the amount of the gift will be greater than the allowed non taxable threshold.
Answer Applies to: Pennsylvania
Replied: 12/21/2010
Law Offices of Brian Chew
Law Offices of Brian Chew | Brian Chew
You may be able to disclaim your right to a portion of the brokerage account back to her estate and then technically have the distribution to your sister go through her will. Alternatively, depending on the amount of money being distributing, using your gift tax exemption may not result in any gift tax being paid. I would need to know a lot more about the situation to give a matter answer. You would also want to consult you CPA as well.
Answer Applies to: California
Replied: 12/20/2010
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