Government Will Take A Huge Cut
Unless Paul's mother-in-law acts quickly, the gift tax from her inheritance might take her head off.
QUESTION: Paul’s mother-in-law inherited $1 million. She gave $50,000 to each child, which Paul and his wife used to pay off debt and fund their emergency fund. His mother-in-law wants to know what to do with the $600,000 left over. Dave thinks the gift tax might this her hard if she doesn’t take the proper steps, quickly.
ANSWER: If she did that giveaway in this calendar year, she needs to immediately, as an emergency, get some tax advice. When you give a gift of over $12,000, you subject yourself to a gift tax of up to 55%. She could have just created $250,000 in taxes. She needs to see a certified public accountant and estate planner immediately. She needs to declare under the Unified Estate Tax Credit. In other words, she gave away part of her estate before she died. You have to qualify those gifts that way in this year that she gave them or she’s going to get nailed. This is a $200,000 error if she doesn’t address this.
As far as what she does with her money, make sure she’s debt free and has an emergency fund of 3-6 months of expenses in place. She should go very slowly with investing and learn as she goes. I’d spread the money across balanced, growth and income, aggressive growth and international mutual funds with proven track records. She doesn’t need to get a masters degree in finance, but she needs to know how mutual funds work. Don’t let her put money in anything she doesn’t understand.