My grandmother gives my dad money each month, which he divides between his children. Who pays taxes?

Question

My grandmother has "struck oil" in Texas, so she gives each of her children "a cut", and they in turn are giving each of their children "a cut". If my grandma pays taxes on the money, and then my dad pays taxes on what he receives (though he really only keeps 25% of it), and then we the children pay taxes, isn't that tripple taxation? What do we do?

I should clarify that the money exceeds the alotted "11,000" yearly tax-free gift... also, because my grandma is dividing the money 3 ways (which each of her children are then dividing 4 ways to give to family), we don't want my grandma to pay for all of the taxes... but we also want to avoid the "tripple taxation" thing (ie will it look like my grandma is making, say, $330,000 a year, though she only keeps $110,000, and then my dad, who "receives" $110,000" only keeps 25%, and so on.... so how do we make sure that we each are only paying taxes on what we KEEP and not on what we are dispersing? (if that makes sense)....

Answer 1

Welcome to America!!! What you have the government takes!!! Triple taxation???? There's nothing you can do about it!!! Why do you thing the poor and middle income earners get poorer all the time?????

Answer 2

Why doesn't the grandmother give the money to each person limiting it to $11000 each? Or she could give more to each person -- son, grandchildren etc. and pay the gift tax but keep out enough on her side to pay the gift tax. She needs to speak to someone who knows investments and who knows taxes -- sounds like everyone would save some money.

Answer 3

Your grandmother pays income on the money when she receives it. When she gives it to your dad, and when he gives it to you, none of you pay additional taxes, so there's no triple taxations. From your grandmother, to your dad, to you, is a gift, so nobody pays income tax. If any one person gives to any one person over $12,000 a year, then the giver would have to file a gift tax return - it's possible, although not probable, that a gift tax would then be due.

Answer 4

No, only the gift giver is subject to gift taxes. You do not have to claim this gift as income, nor pay tax on it. If your grandmother gives any one person over $12,000 in one year, she will have to file a gift tax return (Form 709) and may be subject to gift tax.

Have your grandmother issue checks to everyone (children, grandchildren) for no more than the annual gift exclusion amount each year ($12,000 for 2007). This way, she will not have to file a gift tax return.

Certain gifts are not subject to the $12,000 amount. Your grandmother can pay tuition or medical expenses for someone's benefit, as long as she pays these expenses DIRECTLY to an educational or medical institution for someone's benefit.

Answer 5

Actually, your grandmother needs to look into setting up a trust.

That way, there would be a set amount alloted to each person based on the rules of the trust and the money would only be taxed once.

Incidentally, you CAN give a one-time gift each year to someone tax-free (as long as it doesn't go over a certain amount -- I believe it's $10k.) You really do need to check with a good tax lawyer and find out how to best protect yourselves.

Answer 6

Only grandmother pays taxes, if she is the receiver of the oil royalties. The money she gives to your dad is not taxable to him. In turn, the money he gives to his children is not taxable to the children.