My grandparents estate was recently finalized and the money was distributed to the beneficiaries listed on the trust. Before they passed away, my grandparents requested that their sons (the listed beneficiaries) provide a portion of their part of the inheritance to each of their children. This is turning out to be a fairly substantial amount of money for each grandchild. As the grandchildren are not listed on the trust, does this now need to be reported as income for individual taxes (the estate already paid taxes on this money)? Or does this end up falling into the gift category and more taxes need to be paid by our parents? Or are the grandchildren free and clear with this money? We have an appointment with a tax advisor, but figured it wouldn't hurt to ask, as I imagine there are others who have faced this or similar scenarios.
Or does this end up falling into the gift category and more taxes need to be paid by our parents?
If the grandchildren are not mentioned in the will or trust as beneficiaries but only a request was made by the grandparents, then it definitely falls within the gift category.
The gift would be from the parents to their children and then would need to file a gift tax return if the gift exceeded the annual exclusion amount which is currently $18,000 per person per donee.
The advisor may offer a different solution but it might be better to consult a tax or estate lawyer. It would be optimal if the parents could somehow disclaim part of the inheritance so the grandchildren receive it as an inheritance rather than a gift from their parents.