For as long as I can remember, my grandmother has talked about dying a millionaire. While other retirees plot out how to use their money to pay off mortgages, go on vacations, or live it up in their final years, my grandmother has been busy saving, investing, and saving some more.

Last week, my father – who also serves as her accountant – shared some interesting news with me. Apparently, my grandmother had not only reached her goal, but far surpassed it, accumulating an estate worth well into the seven-figure range. However, my father’s good news was tinged with some bad news as well. Although my grandmother had achieved her financial dreams, her failing health and an upcoming change to an existing law meant she’d have to part with at least some of it sooner than she’d planned.

The Estate Tax Expiration

Last year, Congress extended cuts on gift and estate taxes through the end of 2012. Through December 31, individual estates of $5 million or less are exempt from estate taxes; after that, the tax exemption cap on estates will return to 2001 levels of $1 million per person, meaning that estate holdings over that mark could be taxed at a top rate of 55 percent.

My grandmother’s estate is currently worth more than $1 million. So what, you ask? Well, she’s been in failing health over the past several years, recently suffering several mini-strokes; always the miser, she doesn’t want to give any of her money to Uncle Sam should she pass away on January 1, 2013, and has enacted a plan to prevent that from happening.

Gift Tax Rules

My grandmother has decided to combat the greedy fingers of Uncle Sam (her term, not mine) by taking advantage of the gift tax exemption. The law stipulates that one person can give a financial gift up to $13,000 to another person every year without incurring taxes. (Note: That gift tax exemption is scheduled to remain in effect – at $13,000 a year – even if Congress fails to extend it into 2013; however, the lifetime gift tax exemption for an individual would be dramatically reduced in the absence of an extension.)

My grandmother has been signing checks left and right lately; she gave all three of her daughters checks for $13,000 a few weeks ago, then decided she hadn’t liquidated enough of her estate and cut a check to my father (her only son-in-law) as well. Last week, I received my own $13,000 check in the mail (who sends a $13k check using standard postage, seriously?), as did my other two cousins who are over the age of 21 – the check for my youngest (preteen) cousin was deposited into a trust in his name, accessible on his 21st birthday.

She’s Not Done Yet

My grandmother isn’t finished avoiding estate taxes. My father has told me to expect another $13,000 check in the first month of 2013, especially if my grandmother’s condition continues to deteriorate at a rapid pace and her investments continue to see strong returns. Her goal is to keep her estate’s total value at under $1 million to avoid paying the estate tax should she pass away, unless, of course, Congress passes an extension of those exemptions.

Accepting Family Money

While part of me is thrilled at the prospect of an extra $13,000 in my bank account, I’m not happy about how this all came about. No one wants to profit as they watch a loved one grow older and feebler; I’ve always been exceptionally close with my grandmother, making this sentiment especially true.

And then there’s the fact that accepting family money – regardless of how you receive it – is complicated. When it’s money you earn on your own, you feel like you can do anything you want with it. Want to blow it on a cruise around the world? It’s your money! Want to splurge on a designer wardrobe? You earned it! The options are limitless. But when you receive family money, you feel like you should do something to honor the person who gave it to you; in fact, the best way to honor my grandmother would be to reinvest it, hopefully building on her legacy of becoming a senior-citizen millionaire.

Reader, what would you do with $13,000 in family money? I’ll be reviewing some of your comments on this post, plus publishing my own plans in a future post!