moving my mother's "escape" fund to me

[mattydt20]

Thanks for reading my post!

My mother and father had a tumultuous relationship when I was younger. At one point she thought she might need to escape, and saved up a large amount of money in case that event happened. It is currently in a joint account with my aunt's name as the primary account holder, and my mother's name as the secondary account owner.

She wants to move it to my name so I can control it. However, she does not want any paperwork to follow her and wants all notifications, tax forms, etc to be under my name - so my father does not catch wind of it.

After years of growth the investment amount is now $87k. I know I can transfer the funds into my Vanguard account and it won't create a taxable event until they are sold (or so Vanguard told me). I wanted to sell the assets and move them into VTSAX.

My goals are to transfer the funds with the least tax, and move the shares into VTSAX with the least tax generated. It will all be long term capital gains.

I know she could give my wife, my daughter, and I up to $14,000 each per year, tax free. Should she liquidate the funds in the other firm first, and then give $14,000 to each us of each year until the money runs out?

Financial considerations: My wife and I grossed $142,000 in 2017 (paid equally), taxable income of $87,000. I live in New Hampshire. We currently claim no other capital gains. If my wife gets pregnant soon, we plan that she will stop working and be a stay at home mother. We still hope to max out my 403b and IRAs for the both of us if she did stop working. That would put us at 70k gross next year, 41k taxable, which may open up some opportunities for claiming additional income without causing major tax implications.

I'm new to tax management, so guidance would be greatly appreciated!

Thanks in advance!

Matt 

[skuzuker28]

If your mom liquidates she would have to report capital gain on her return, which would tip off your father if they file jointly.

She can transfer $15k to each donee (you, your wife, and daughter) annually without triggering a gift tax return.  Anything above that would require the filing of a gift tax return, though unless she has given significant gifts in the past there wouldn't be any tax due.

Transferring in-kind would avoid reporting on her return, but you would have to report gain on your return when you sell as you would get her carry-over basis.  If your daughter is also gifted shares be mindful of potential kiddie-tax issues.

[terran]

If your aunt is the primary account holder it sounds like she would be the one giving this money to you.

There isn't actually any tax on gifts over $15k, they just count against the donee's lifetime estate tax exclusion which is something like $11 million thanks to the recent tax bill (used to more like $5.5 million). State law may vary.

[Rocketman]

To be “fair” that account should pay for any tax bills (my assumption), so is your Aunt or you in the lower tax bracket? I am assuming the account is currently in your aunt’s ssn.

Good luck

[mattydt20]

I assume my aunt is in the lower tax bracket, so it sounds like the cleanest way to do it would be to have my aunt liquidate 30k of assets per year, then transfer it to my wife and I $15k per year until the amount has been entirely removed from the account.

I'm not family with the child tax implication, if my daughter also received 15k. Can anyone explain that?

Side note...
if my wife stops working and we get our joint income to $77,200, isn't there some rule where I wouldn't pay capital gains at that tax bracket?

[EricEng]

Since your mom is secondary nothing will show on her taxes if the account is liquidated or transferred from a tax sense (no clue if brokerage will mail something).  As others said you could transfer the entire sum as shares without generating capital gains or gift taxes, you would just have to report the gift amount so it is recorded against life time gifting exemption (like $11mill atm).