ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, July 8, 1996 TAG: 9607080132
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: I'm almost confident that a parent can give each child $10,000 a year. I'm in the dark on a lump-sum, one-time gift.
My understanding from talking with friends is that a parent can also give a lump-sum gift. How much is that one-time, lump-sum gift, and can it be to more than one child? What is the maximum per child one time?
A: Terrence Clem, a certified public accountant with the Roanoke firm of Miller, Morgan, Agee and Clem, said he has never heard of such a provision in the tax law. He said all gifts are subject to the annual limitation of $10,000.
Any person can give any other person up to $10,000 a year without tax ramifications. A married couple can each give that amount for a total annual gift of $20,000. Such gifts are usually given by parents to children, but the donor and recipient need not be related.
There is no limitation on the number of persons who can receive $10,000 gifts from you. A husband and wife, for instance, could each give $10,000 to each child, to each child's spouse and to all the children of each child.
You can, of course, give more money, but you as the donor would then be required to fill out and file a gift tax return. Then you have the choice of paying a gift tax or, as most people do, count the surplus amount toward the total lifetime exemption of $600,000.
Such surplus gifts would count against the amount of the tax exemption your estate will receive when you die.
Mother can't afford risk
Q: My mother will be 65 in November, and she is planning to retire. She has saved almost $20,000, but she has it sitting in a no-interest account.
What can she do with her savings in order to be able to get to it when she needs it for the future?
A: Because she has a limited amount set aside for her retirement, your mother cannot risk any of it. Nor can she take advantage of diversification. She probably could not sleep at night anyway if she put any of the money in the stock market.
Your mother might buy United States Treasury bills. These are the safest investment because the bills (like Treasury bonds and notes) are backed by the full faith and credit of the federal government. Besides, they usually pay slightly higher interest than bank certificates of deposit do.
She might try buying two $10,000 six-month Treasury bills three months apart. That way, one or the other of the bills would always be coming due within three months so the money would be available for emergencies.
Write to the Federal Reserve Bank of Richmond at P.O. Box 27622, Richmond, Va. 23261-7622. Or you can call the bank at 804-697-8372. Tell them that you would like to become a "Treasury Direct" customer. The bank will send your mother the proper forms. You will have to provide them with the number of your mother's bank account in which she wants the interest deposited by wire transfer.
When the government introduces its new interest-sensitive bonds, your mother may want to invest at least half of her money in this type of security. They can be purchased for as little as $1,000, and they will provide some protection against inflation.
The downside, however, is that these bonds will be invested for a longer time period and will not be as accessible. The principal will always be recovered if you hold on to a government security to maturity. If they have to be sold on the secondary market in advance of maturity, the value of the bond will fluctuate in the opposite direction of interest rates.
At a minimum, your mother should invest in a bank certificate of deposit to earn some interest. The only downside is the penalty for early withdrawal if she needs the money quickly.
If your mother refuses to do any of this, at least persuade her to put the $20,000 in a money market deposit account at her bank. The money can be withdrawn any time the bank is open, and at least she will be earning some interest.
Tell her she is otherwise risking the effect of inflation, which will eat into her savings every month unless she earns some interest.
LENGTH: Medium: 77 linesby CNB