Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 23, 1992 TAG: 9203210021
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
Since my mother's death last year, I have learned that she should have filed a federal gift tax return the year after the house was deeded, although no tax would have been owed. Do I have any liability as to the failure of filing the gift tax return? What effect, if any would this have on a future sale of the property?
The deed my mother made concerned her one-half share in the house. Because my father had previously died without a will, I inherited his one-half interest as an only child. However, my husband and I have never lived in the house. I do not have any records concerning my mother's income at the time of the gift.
A: You should see a lawyer who can review both deeds: the one held by your parents and your mother's gift to you. It is also important to know the dates of their deaths.
J. Lee E. Osborne, a lawyer with the Roanoke firm of Carter, Brown & Osborne, said the person who gives the gift, not the recipient, is usually responsible for filing the return.
If the deed shows your mother retained a formal life interest, Osborne said, you did not receive a completed gift, so the exclusion would not apply.
Assuming she retained a life interest - as opposed to simply continuing to live there - Osborne said the value of the gift would be the "remainder interest value" determined under actuarial tables used for gift tax purposes. But you don't have to worry about this because her estate is worth less than $600,000 even after bringing the house back into the estate and counting life insurance.
Osborne said failure to file a gift tax return in this instance should have no impact on future sale of the property. Your primary concern should be your tax basis for computing any gain or loss.
Your mother's gift had significant impact on you because you assumed her tax basis in the property - the value at the time she bought it plus any capital improvements. Her original cost was probably very low, so you will be taxed on a significant gain at sale. If she had willed you the property, your tax basis would have been the value at the time of her death.
Married couples usually hold property by entirety, or with rights of survivorship. If so, the entire house passed to your mother at his death, not partially to you. A lawyer must look at their deed (or courthouse records) to determine this.
Assuming your father's interest in the house did pass by inheritance, rather than by survivorship, the date of his death becomes important.
Osborne said the law was changed effective July 1, 1977. If your father died after that date, your mother would have owned two-thirds - rather than one-half - of the house outright. The law changed again July 1, 1982. If he died after that date, your mother would have inherited the entire house, assuming there were no children from a former marriage. You must determine what your mother's actual interest was and what she expressly deeded to you. You should have a lawyer review all of these matters before you try to sell the property.
\ Q: When I was employed, I joined a deferred compensation group with an insurance company. Money deducted from my salary was put into a retirement fund. At the time of retirement, I was told that I would have to decide how much money I would like each month, which I did.
In the meantime, I decided to increase the amount of money I receive each month. When I contacted them, they said I couldn't do this because of a federal law. I wrote to my senator's office, and they told me I couldn't change it because this is an annuity.
Who is responsible for this law? When did it go into effect and can it be changed? At the time I joined this plan, I was given a booklet containing all the facts, and this piece of information was not in the booklet.
A: Annuities have always behaved this way. You are presented with the options at the time payout begins, and you must live with the choice you make at that time.
Douglas Quick, a specialist with A. Foster Higgins & Co., an employee benefit plan consulting firm in Richmond, said an annuity is a contract. It is, therefore, based on general contract law. When you signed for your option on payout, you entered into a contract with the insurance company that governed the term of payout, monthly benefit, survivorship payments and other conditions.
The insurance company relied on your choice to assess its risk on what it could afford to pay, Quick said. If the contract could be changed, he said, people would, for instance, try to raise their benefit by eliminating a spouse's share if the spouse dies. On the other hand, they would shift the benefit to the spouse if they fall fatally ill. These are the risks that both you and the insurance company assume.
\ Mag Poff covers banking and finance for the Roanoke Times & World-News. She willhelp find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.
by CNB