Creative gifting of property

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jplee3
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Joined: Thu Nov 13, 2014 9:15 pm

Creative gifting of property

Post by jplee3 » Fri Dec 29, 2017 1:54 am

Hi all,

So I was thinking about the property that we co-own with my parents currently and which they want to transfer the deed to under our names (or the name of our trust). First of all, my dad keeps flip-flopping on what he wants but that's another story. What I'm trying to figure out is how to best reduce/minimize/avoid any major tax liability in the case of transferring the deed (this is prior to and outside the context of receiving it as inheritance... of course, this is always an option if we never figure things out to the point that they pass away).

Anyway, my [basic] understanding is that if they straight out transfer the deed to us outright, it's considered a "gift" at which point we will take the carryover basis and be responsible for whatever capital gains are incurred from the time the property was acquired until it is sold.

What would happen though if we arranged a private sale of the property to where my parents sell us the remainder of the property (I'm not sure how this works in the case of a tenants in common setup)? And then if they really were wanting to gift or help us, they could just gift us according to the $14k per year gift exclusion? We are a family of four so theoretically, my parents could each gift the four of us total $56k or $112k in full, per year. And we would apply that towards the mortgage/private loan that we have taken out from them. Of course, wouldn't they then absorb any sort of taxation?
From their perspective, they are also trying to reduce taxable income/liability so this wouldn't help them but it seems like it might be the 'next best thing' in line behind inheriting from them upon their passing... this is of course in the context that they are wanting to help us out in this way while they are still living.
Another thought that comes to mind is that they would also likely need to sell to us at the current [assessed] market value right? Because even if they were to sell to us at what they paid for it, that's the basis we would assume... at least, this is my assumption.

Either way, I lean towards just waiting for this all via inheritance now. What complicates things is that we are living in the place through tenancy in common (my parents do not live here - they 1031ed a vacation rental into this to supplement the costs) and my brothers have a third interest each in the property per inheritance.

What other option(s) are there that you guys can think of in this case?

AlohaJoe
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Re: Creative gifting of property

Post by AlohaJoe » Fri Dec 29, 2017 2:16 am

jplee3 wrote:
Fri Dec 29, 2017 1:54 am
they could just gift us according to the $14k per year gift exclusion?
You know all the exclusion does is save you from filing a form? They could give you $5 million on Monday and it still wouldn't result in any taxes; you just need to fill out a form reporting it (so the IRS can count it against their lifetime limit). Unless there is a realistic risk of your parents going over the lifetime estate tax exemption -- which is now $11 million -- there's no reason to worry too much about the annual gift exclusion.

On the other hand, if you wait until they pass away, then you get the property at a stepped up cost basis, which could potentially save you lots & lots of money.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Fri Dec 29, 2017 11:20 am

AlohaJoe wrote:
Fri Dec 29, 2017 2:16 am
jplee3 wrote:
Fri Dec 29, 2017 1:54 am
they could just gift us according to the $14k per year gift exclusion?
You know all the exclusion does is save you from filing a form? They could give you $5 million on Monday and it still wouldn't result in any taxes; you just need to fill out a form reporting it (so the IRS can count it against their lifetime limit). Unless there is a realistic risk of your parents going over the lifetime estate tax exemption -- which is now $11 million -- there's no reason to worry too much about the annual gift exclusion.

On the other hand, if you wait until they pass away, then you get the property at a stepped up cost basis, which could potentially save you lots & lots of money.
Thanks! I don't think they'd be willing to gift *more* than $14-28k per year TOTAL between the two of them... we discussed this option of gifting on a related matter previously and they were saying that would be too much to give away and that they don't generate enough income to do that. I thought the point of part of this was for them to reduce their estate as much as they can now though. My wife was discussing with me, on another related topic of them hoarding, that they don't want to give stuff away or "clean house" because that's invited death on themselves - old Chinese superstition, even though they were born here in the US. In any case, I can't help but think that's another reason they wouldn't want to reduce their estate, but it does sound like they're living in excess - my dad was complaining about how much he owes in taxes per year because of all the pension and investment income being generated. I don't know how big their overall estate size is but I'd be surprised if it's $5mil let alone $11mil. It's probably in the low millions but who knows - maybe I'll be surprised. They keep a pretty tight lid on what they have.

So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?

AlohaJoe
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Re: Creative gifting of property

Post by AlohaJoe » Fri Dec 29, 2017 7:24 pm

jplee3 wrote:
Fri Dec 29, 2017 11:20 am
So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?
If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.

jplee3
Posts: 84
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Re: Creative gifting of property

Post by jplee3 » Sat Dec 30, 2017 2:13 am

AlohaJoe wrote:
Fri Dec 29, 2017 7:24 pm
jplee3 wrote:
Fri Dec 29, 2017 11:20 am
So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?
If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.
Haha good point. So yea, I guess getting it via inheritance really is the best way. Except I'm not sure how to work things out with the place, if we're still living, once they pass and my brothers and I have to split it in thirds. I guess I would be expected to buy them out (assuming we want to continue living here)? And at the value of the stepped-up basis? So if it's worth $600k at the time of the last parent passing and I already own 25% (which is the % determined per tenancy in common) I would then own 50% and would need to consider buying my brothers' portions of 25% each. Seems like this might be the 'cleanest' way for things to happen for everyone across the board.

Carefreeap
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Re: Creative gifting of property

Post by Carefreeap » Sat Dec 30, 2017 12:25 pm

Do you know the expression "You can't have your cake and eat it too"?

That's the problem you have here. Your parents either pay the taxes on the income they are receiving from the rental or they pay taxes when they sell it. The $0 tax option isn't available.

Your parents have a GOOD problem, a first world problem whereby they have enough $$$ where they have a tax problem.

If they sell, even on a note which they forgive over time, they will pay taxes on both the money they receive in year 1 + pay the recapture tax. During the pay off of the private note, they will be paying taxes on the principal they receive (or forgive) + on the interest they receive (or forgive).

I'm not seeing the net benefit of this arrangement for them and am thinking the situation could get quite complicated (even beyond the financial) for you and your siblings once they pass. I'm not saying that it can't work but the more complicated a situation the less likely, in my experience, for a successful outcome.

Under the circumstances I think I would just ignore my father's complaints about paying too many taxes and change the subject. :beer

chevca
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Re: Creative gifting of property

Post by chevca » Sat Dec 30, 2017 1:03 pm

This is a little confusing. Is the property a house you co-own with your parents, or just a propert/piece of land?

If you co-own it now, why would you have to split the whole thing in thirds when the folks pass? Your part is your part.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sat Dec 30, 2017 1:29 pm

Carefreeap wrote:
Sat Dec 30, 2017 12:25 pm
Do you know the expression "You can't have your cake and eat it too"?

That's the problem you have here. Your parents either pay the taxes on the income they are receiving from the rental or they pay taxes when they sell it. The $0 tax option isn't available.

Your parents have a GOOD problem, a first world problem whereby they have enough $$$ where they have a tax problem.

If they sell, even on a note which they forgive over time, they will pay taxes on both the money they receive in year 1 + pay the recapture tax. During the pay off of the private note, they will be paying taxes on the principal they receive (or forgive) + on the interest they receive (or forgive).

I'm not seeing the net benefit of this arrangement for them and am thinking the situation could get quite complicated (even beyond the financial) for you and your siblings once they pass. I'm not saying that it can't work but the more complicated a situation the less likely, in my experience, for a successful outcome.

Under the circumstances I think I would just ignore my father's complaints about paying too many taxes and change the subject. :beer
Haha yea, definitely a good problem that they have here.

In terms of the "arrangement" you're referring to, it's the original one I was inquiring about regarding selling on a private note and forgiving it (via the offset of the gift exclusion) right?

So would you also agree then that the 'cleanest' way to proceed would be to leave things as-is and just inherit the property outright upon their passing? One other thing I stumbled across is the common property law in CA where if one spouse passes the other inherits the property at the stepped-up basis. At that point, could the surviving spouse then sell or gift the property to his/her child(ren) without worrying about incurring major cap gains due to that stepped-up basis? I think at this point, the taxation issues for my parents are unavoidable... part of them wanting to transfer title, I think, is to offset their tax liability in the real estate by transferring it to us. They do own other properties and my dad was talking about gifting those to us as well, but I think we have determined that even with those it's better to wait for the inheritance to receive them. Then deal with it at the time... that will either mean selling the properties and splitting the money in thirds or potentially renting the properties and splitting the cashflow in thirds (as well as dividing the expenses up in thirds)

ncbill
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Re: Creative gifting of property

Post by ncbill » Sat Dec 30, 2017 1:32 pm

hmmm....can they grant a life estate on a co-owned property?

mom gifted her kids her interest in a property co-owned by her & her siblings, but her attorney structured it so the gift didn't close/finalize until her death in order to get the step-up.

notmyhand
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Re: Creative gifting of property

Post by notmyhand » Sat Dec 30, 2017 1:34 pm

Instead of splitting it into thirds at their passing they could also will this one to you, the next piece of property to your brother, etc. Then no one is having to buy anyone out.

jplee3
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Re: Creative gifting of property

Post by jplee3 » Sat Dec 30, 2017 2:37 pm

notmyhand wrote:
Sat Dec 30, 2017 1:34 pm
Instead of splitting it into thirds at their passing they could also will this one to you, the next piece of property to your brother, etc. Then no one is having to buy anyone out.
True, they do own two other properties besides the house they live in, so my brothers could each get a property as well. There are discrepancies in the value between all three properties of course. The one we live in falls in the middle. They have a small condo up in the Bay Area as well as a single family home that are around $400k-500k and $800k-900k, respectively. The one we're living in is closer to $600k. I guess what they could do is assign each property accordingly and then depending on the value of each gift cash inheritances relatively. I think the thirds thing was just an 'easier' way for them to deal with things without having to deal with that sort of discrepancy.

Sandi_k
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Re: Creative gifting of property

Post by Sandi_k » Sat Dec 30, 2017 2:45 pm

jplee3 wrote:
Sat Dec 30, 2017 2:37 pm

True, they do own two other properties besides the house they live in, so my brothers could each get a property as well. There are discrepancies in the value between all three properties of course. The one we live in falls in the middle. They have a small condo up in the Bay Area as well as a single family home that are around $400k-500k and $800k-900k, respectively. The one we're living in is closer to $600k. I guess what they could do is assign each property accordingly and then depending on the value of each gift cash inheritances relatively. I think the thirds thing was just an 'easier' way for them to deal with things without having to deal with that sort of discrepancy.
Having three owners (plus spouses!) for each of three properties is NOT "easier."

I would gift your house to you, and pick one property for each of the other siblings. Then direct the case be divvied up to make each child "whole" in terms of value of property upon parents' death + cash.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sat Dec 30, 2017 2:52 pm

Sandi_k wrote:
Sat Dec 30, 2017 2:45 pm
jplee3 wrote:
Sat Dec 30, 2017 2:37 pm

True, they do own two other properties besides the house they live in, so my brothers could each get a property as well. There are discrepancies in the value between all three properties of course. The one we live in falls in the middle. They have a small condo up in the Bay Area as well as a single family home that are around $400k-500k and $800k-900k, respectively. The one we're living in is closer to $600k. I guess what they could do is assign each property accordingly and then depending on the value of each gift cash inheritances relatively. I think the thirds thing was just an 'easier' way for them to deal with things without having to deal with that sort of discrepancy.
Having three owners (plus spouses!) for each of three properties is NOT "easier."

I would gift your house to you, and pick one property for each of the other siblings. Then direct the case be divvied up to make each child "whole" in terms of value of property upon parents' death + cash.
Yea, seems like it could get messy divvying it up in thirds... when you say "gift" your house, I'm assuming that could mean leaving our tenancy in common agreement as-is but changing the details in the trust so that, upon their passing, we would attain their full interest in their ownership of property (versus splitting it in thirds with my brothers). Then my brothers would each own one of the other properties up north. I guess the only 'outstanding' complication would be with their own house (which would be the fourth property) and how that would be accounted for.... this one, BTW, is probably worth over $1M

Carefreeap
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Re: Creative gifting of property

Post by Carefreeap » Sat Dec 30, 2017 2:54 pm

jplee3 wrote:
Sat Dec 30, 2017 1:29 pm
Carefreeap wrote:
Sat Dec 30, 2017 12:25 pm
Do you know the expression "You can't have your cake and eat it too"?

That's the problem you have here. Your parents either pay the taxes on the income they are receiving from the rental or they pay taxes when they sell it. The $0 tax option isn't available.

Your parents have a GOOD problem, a first world problem whereby they have enough $$$ where they have a tax problem.

If they sell, even on a note which they forgive over time, they will pay taxes on both the money they receive in year 1 + pay the recapture tax. During the pay off of the private note, they will be paying taxes on the principal they receive (or forgive) + on the interest they receive (or forgive).

I'm not seeing the net benefit of this arrangement for them and am thinking the situation could get quite complicated (even beyond the financial) for you and your siblings once they pass. I'm not saying that it can't work but the more complicated a situation the less likely, in my experience, for a successful outcome.

Under the circumstances I think I would just ignore my father's complaints about paying too many taxes and change the subject. :beer
Haha yea, definitely a good problem that they have here.

In terms of the "arrangement" you're referring to, it's the original one I was inquiring about regarding selling on a private note and forgiving it (via the offset of the gift exclusion) right?

So would you also agree then that the 'cleanest' way to proceed would be to leave things as-is and just inherit the property outright upon their passing? One other thing I stumbled across is the common property law in CA where if one spouse passes the other inherits the property at the stepped-up basis. At that point, could the surviving spouse then sell or gift the property to his/her child(ren) without worrying about incurring major cap gains due to that stepped-up basis? I think at this point, the taxation issues for my parents are unavoidable... part of them wanting to transfer title, I think, is to offset their tax liability in the real estate by transferring it to us. They do own other properties and my dad was talking about gifting those to us as well, but I think we have determined that even with those it's better to wait for the inheritance to receive them. Then deal with it at the time... that will either mean selling the properties and splitting the money in thirds or potentially renting the properties and splitting the cashflow in thirds (as well as dividing the expenses up in thirds)
It's called Community Property. Yes, both the State and the Feds recognize the stepped up basis. No tax liability if spouse immediately sells.

Carefreeap
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Re: Creative gifting of property

Post by Carefreeap » Sat Dec 30, 2017 2:58 pm

Sandi_k wrote:
Sat Dec 30, 2017 2:45 pm
jplee3 wrote:
Sat Dec 30, 2017 2:37 pm

True, they do own two other properties besides the house they live in, so my brothers could each get a property as well. There are discrepancies in the value between all three properties of course. The one we live in falls in the middle. They have a small condo up in the Bay Area as well as a single family home that are around $400k-500k and $800k-900k, respectively. The one we're living in is closer to $600k. I guess what they could do is assign each property accordingly and then depending on the value of each gift cash inheritances relatively. I think the thirds thing was just an 'easier' way for them to deal with things without having to deal with that sort of discrepancy.
Having three owners (plus spouses!) for each of three properties is NOT "easier."

I would gift your house to you, and pick one property for each of the other siblings. Then direct the case be divvied up to make each child "whole" in terms of value of property upon parents' death + cash.
+1

It's called equalizing equities. Much cleaner and can potentially keep the inheritance separate from spouses.

I'm too lazy to look up the old thread but hopefully these properties are in a Living Trust. Much easier to do all the trading around and keeping the situation private.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sun Dec 31, 2017 1:34 am

Carefreeap wrote:
Sat Dec 30, 2017 2:58 pm
Sandi_k wrote:
Sat Dec 30, 2017 2:45 pm
jplee3 wrote:
Sat Dec 30, 2017 2:37 pm

True, they do own two other properties besides the house they live in, so my brothers could each get a property as well. There are discrepancies in the value between all three properties of course. The one we live in falls in the middle. They have a small condo up in the Bay Area as well as a single family home that are around $400k-500k and $800k-900k, respectively. The one we're living in is closer to $600k. I guess what they could do is assign each property accordingly and then depending on the value of each gift cash inheritances relatively. I think the thirds thing was just an 'easier' way for them to deal with things without having to deal with that sort of discrepancy.
Having three owners (plus spouses!) for each of three properties is NOT "easier."

I would gift your house to you, and pick one property for each of the other siblings. Then direct the case be divvied up to make each child "whole" in terms of value of property upon parents' death + cash.
+1

It's called equalizing equities. Much cleaner and can potentially keep the inheritance separate from spouses.

I'm too lazy to look up the old thread but hopefully these properties are in a Living Trust. Much easier to do all the trading around and keeping the situation private.
Yes, these are in my parents' living trust. Sounds like what they *should* consider doing in the context of the trust is assigning a property to each son and compensating with cash/funds if there is a property that's worth less than the others. e.g. Property A = $400k, Property B = $500k, and Property C = $800k. Let's assume parents want to pass down $1M to each son in assets.... so Property A + $600k cash/other assets to youngest son, Property B + $500k cash/other assets to second son, and Property C + $200k cash/other assets to oldest son.

The other reason I can think of as to why they would decide not to do it this way is due to the varying appreciation between each property type. Property A obviously hasn't appreciated as much as Properties B and C simply due to the property type. Of course, appreciation is never guaranteed either but in general I would think a larger sized home would generally get more gains than a smaller sized home or condo. Maybe I'm making assumptions under false pretense though...

jplee3
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Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sun Dec 31, 2017 1:41 am

Carefreeap wrote:
Sat Dec 30, 2017 2:54 pm
jplee3 wrote:
Sat Dec 30, 2017 1:29 pm
Carefreeap wrote:
Sat Dec 30, 2017 12:25 pm
Do you know the expression "You can't have your cake and eat it too"?

That's the problem you have here. Your parents either pay the taxes on the income they are receiving from the rental or they pay taxes when they sell it. The $0 tax option isn't available.

Your parents have a GOOD problem, a first world problem whereby they have enough $$$ where they have a tax problem.

If they sell, even on a note which they forgive over time, they will pay taxes on both the money they receive in year 1 + pay the recapture tax. During the pay off of the private note, they will be paying taxes on the principal they receive (or forgive) + on the interest they receive (or forgive).

I'm not seeing the net benefit of this arrangement for them and am thinking the situation could get quite complicated (even beyond the financial) for you and your siblings once they pass. I'm not saying that it can't work but the more complicated a situation the less likely, in my experience, for a successful outcome.

Under the circumstances I think I would just ignore my father's complaints about paying too many taxes and change the subject. :beer
Haha yea, definitely a good problem that they have here.

In terms of the "arrangement" you're referring to, it's the original one I was inquiring about regarding selling on a private note and forgiving it (via the offset of the gift exclusion) right?

So would you also agree then that the 'cleanest' way to proceed would be to leave things as-is and just inherit the property outright upon their passing? One other thing I stumbled across is the common property law in CA where if one spouse passes the other inherits the property at the stepped-up basis. At that point, could the surviving spouse then sell or gift the property to his/her child(ren) without worrying about incurring major cap gains due to that stepped-up basis? I think at this point, the taxation issues for my parents are unavoidable... part of them wanting to transfer title, I think, is to offset their tax liability in the real estate by transferring it to us. They do own other properties and my dad was talking about gifting those to us as well, but I think we have determined that even with those it's better to wait for the inheritance to receive them. Then deal with it at the time... that will either mean selling the properties and splitting the money in thirds or potentially renting the properties and splitting the cashflow in thirds (as well as dividing the expenses up in thirds)
It's called Community Property. Yes, both the State and the Feds recognize the stepped up basis. No tax liability if spouse immediately sells.

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?

Sandi_k
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Re: Creative gifting of property

Post by Sandi_k » Sun Dec 31, 2017 11:14 am

jplee3 wrote:
Sun Dec 31, 2017 1:41 am

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?
Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.

Not Law
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Re: Creative gifting of property

Post by Not Law » Sun Dec 31, 2017 1:41 pm

Understand that the reason for the stepped up basis upon inheritance is that the gain is subject to the parent's estate tax. So a gift now applied to the $11 million is the same as inheriting the same. If everything adds up to more than $11m ($22m with properly drafted trusts), then the estate will be paying tax on the transfer whether by gift or inheritance.

NotWhoYouThink
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Re: Creative gifting of property

Post by NotWhoYouThink » Sun Dec 31, 2017 4:51 pm

What if you want to move? What if they don't want to keep all these properties until they die - if no one in the family is living in them someone still has to manage them. What if you or your brothers wants to buy and build equity in your own houses? What if you get divorced? What if the market for one of the properties soars, and the market for another one crashes?

It seems like it would be cleaner for your parents to manage their money and property and you to manage yours. If they want to give you money they can do that any time.

They seem to be letting the tax obligations drive the investment decisions, that may not be the best way to do long term planning.

Carefreeap
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Re: Creative gifting of property

Post by Carefreeap » Sun Dec 31, 2017 4:55 pm

Sandi_k wrote:
Sun Dec 31, 2017 11:14 am
jplee3 wrote:
Sun Dec 31, 2017 1:41 am

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?
Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.
Agree with this approach. And I wouldn't mess with trying to assign value and a son to a property and equalizing the equities until that time. It could be 10 years before one of them passes and the numbers could be completely different.

jplee3
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Re: Creative gifting of property

Post by jplee3 » Sun Dec 31, 2017 6:38 pm

Carefreeap wrote:
Sun Dec 31, 2017 4:55 pm
Sandi_k wrote:
Sun Dec 31, 2017 11:14 am
jplee3 wrote:
Sun Dec 31, 2017 1:41 am

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?
Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.
Agree with this approach. And I wouldn't mess with trying to assign value and a son to a property and equalizing the equities until that time. It could be 10 years before one of them passes and the numbers could be completely different.
Yea I was gonna ask about how they would assign value out if one of them passes and the other gifts properties that may appreciate (or depreciate) from that time to the time that they then pass. How much "equalization" could you really do at that point? I guess that's still sort of a question I have regardless in terms of equalizing equities - how do you deal with appreciation?

Carefreeap
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Re: Creative gifting of property

Post by Carefreeap » Mon Jan 01, 2018 9:36 pm

jplee3 wrote:
Sun Dec 31, 2017 6:38 pm
Carefreeap wrote:
Sun Dec 31, 2017 4:55 pm
Sandi_k wrote:
Sun Dec 31, 2017 11:14 am
jplee3 wrote:
Sun Dec 31, 2017 1:41 am

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?
Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.
Agree with this approach. And I wouldn't mess with trying to assign value and a son to a property and equalizing the equities until that time. It could be 10 years before one of them passes and the numbers could be completely different.
Yea I was gonna ask about how they would assign value out if one of them passes and the other gifts properties that may appreciate (or depreciate) from that time to the time that they then pass. How much "equalization" could you really do at that point? I guess that's still sort of a question I have regardless in terms of equalizing equities - how do you deal with appreciation?
You don't. If the remaining spouse chooses to sell and distribute the proceeds to each the three children, the proceeds are then the responsibility of the recipient. The recipient can choose to spend, reinvest, or something in between.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sat Jan 06, 2018 1:11 am

Carefreeap wrote:
Mon Jan 01, 2018 9:36 pm
jplee3 wrote:
Sun Dec 31, 2017 6:38 pm
Carefreeap wrote:
Sun Dec 31, 2017 4:55 pm
Sandi_k wrote:
Sun Dec 31, 2017 11:14 am
jplee3 wrote:
Sun Dec 31, 2017 1:41 am

So in this case, another option to reduce tax liability for my mom or dad is to consider having them gift or privately sell the property(ies) to us after the point at which one of them passes and the other is still living? Because if they were to gift us the property we would carryover whatever their stepped up basis would have been? Or if they were to sell to us there would be no cap gains on their part since they received the stepped-up basis. Am I missing something?
Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.
Agree with this approach. And I wouldn't mess with trying to assign value and a son to a property and equalizing the equities until that time. It could be 10 years before one of them passes and the numbers could be completely different.
Yea I was gonna ask about how they would assign value out if one of them passes and the other gifts properties that may appreciate (or depreciate) from that time to the time that they then pass. How much "equalization" could you really do at that point? I guess that's still sort of a question I have regardless in terms of equalizing equities - how do you deal with appreciation?
You don't. If the remaining spouse chooses to sell and distribute the proceeds to each the three children, the proceeds are then the responsibility of the recipient. The recipient can choose to spend, reinvest, or something in between.

I was wondering more along the lines of if the surviving spouse gifted or privately sold the properties to us (as opposed to selling them for cash - that would make things easy if we just wanted to take the cash, but some of us may want the actual properties).

mnnice
Posts: 326
Joined: Sat Aug 11, 2012 5:48 pm

Re: Creative gifting of property

Post by mnnice » Sat Jan 06, 2018 10:21 am

jplee3 wrote:
Sat Dec 30, 2017 2:13 am
AlohaJoe wrote:
Fri Dec 29, 2017 7:24 pm
jplee3 wrote:
Fri Dec 29, 2017 11:20 am
So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?
If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.
Haha good point. So yea, I guess getting it via inheritance really is the best way. Except I'm not sure how to work things out with the place, if we're still living, once they pass and my brothers and I have to split it in thirds. I guess I would be expected to buy them out (assuming we want to continue living here)? And at the value of the stepped-up basis? So if it's worth $600k at the time of the last parent passing and I already own 25% (which is the % determined per tenancy in common) I would then own 50% and would need to consider buying my brothers' portions of 25% each. Seems like this might be the 'cleanest' way for things to happen for everyone across the board.
Your math is incorrect if you each get equal thirds. You will each own a third or about $200,000 and need to $400,000 to buy out sibs not $300,000.

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sat Jan 06, 2018 1:12 pm

mnnice wrote:
Sat Jan 06, 2018 10:21 am
jplee3 wrote:
Sat Dec 30, 2017 2:13 am
AlohaJoe wrote:
Fri Dec 29, 2017 7:24 pm
jplee3 wrote:
Fri Dec 29, 2017 11:20 am
So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?
If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.
Haha good point. So yea, I guess getting it via inheritance really is the best way. Except I'm not sure how to work things out with the place, if we're still living, once they pass and my brothers and I have to split it in thirds. I guess I would be expected to buy them out (assuming we want to continue living here)? And at the value of the stepped-up basis? So if it's worth $600k at the time of the last parent passing and I already own 25% (which is the % determined per tenancy in common) I would then own 50% and would need to consider buying my brothers' portions of 25% each. Seems like this might be the 'cleanest' way for things to happen for everyone across the board.
Your math is incorrect if you each get equal thirds. You will each own a third or about $200,000 and need to $400,000 to buy out sibs not $300,000.

Except the part about how I already own 25% of the $600k, or $150k. Which means that $450k what would be split into thirds, hence the $150k portions or $300k buy out from my siblings

mnnice
Posts: 326
Joined: Sat Aug 11, 2012 5:48 pm

Re: Creative gifting of property

Post by mnnice » Sat Jan 06, 2018 3:57 pm

jplee3 wrote:
Sat Jan 06, 2018 1:12 pm
mnnice wrote:
Sat Jan 06, 2018 10:21 am
jplee3 wrote:
Sat Dec 30, 2017 2:13 am
AlohaJoe wrote:
Fri Dec 29, 2017 7:24 pm
jplee3 wrote:
Fri Dec 29, 2017 11:20 am
So what about the whole idea of them selling it privately to us to avoid tax liability? I mean, even if they sell it at current market value and we take a loan against them where they gift the money back, the money is being kept within the family no?
If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.
Haha good point. So yea, I guess getting it via inheritance really is the best way. Except I'm not sure how to work things out with the place, if we're still living, once they pass and my brothers and I have to split it in thirds. I guess I would be expected to buy them out (assuming we want to continue living here)? And at the value of the stepped-up basis? So if it's worth $600k at the time of the last parent passing and I already own 25% (which is the % determined per tenancy in common) I would then own 50% and would need to consider buying my brothers' portions of 25% each. Seems like this might be the 'cleanest' way for things to happen for everyone across the board.
Your math is incorrect if you each get equal thirds. You will each own a third or about $200,000 and need to $400,000 to buy out sibs not $300,000.

Except the part about how I already own 25% of the $600k, or $150k. Which means that $450k what would be split into thirds, hence the $150k portions or $300k buy out from my siblings
So you own 25% and your parents own the remaining 75%?

jplee3
Posts: 84
Joined: Thu Nov 13, 2014 9:15 pm

Re: Creative gifting of property

Post by jplee3 » Sat Jan 06, 2018 4:31 pm

mnnice wrote:
Sat Jan 06, 2018 3:57 pm
jplee3 wrote:
Sat Jan 06, 2018 1:12 pm
mnnice wrote:
Sat Jan 06, 2018 10:21 am
jplee3 wrote:
Sat Dec 30, 2017 2:13 am
AlohaJoe wrote:
Fri Dec 29, 2017 7:24 pm


If the sell it to you privately then you parents will pay a ton of capital gains taxes, which it sounds like you generate a ton of whining.
Haha good point. So yea, I guess getting it via inheritance really is the best way. Except I'm not sure how to work things out with the place, if we're still living, once they pass and my brothers and I have to split it in thirds. I guess I would be expected to buy them out (assuming we want to continue living here)? And at the value of the stepped-up basis? So if it's worth $600k at the time of the last parent passing and I already own 25% (which is the % determined per tenancy in common) I would then own 50% and would need to consider buying my brothers' portions of 25% each. Seems like this might be the 'cleanest' way for things to happen for everyone across the board.
Your math is incorrect if you each get equal thirds. You will each own a third or about $200,000 and need to $400,000 to buy out sibs not $300,000.

Except the part about how I already own 25% of the $600k, or $150k. Which means that $450k what would be split into thirds, hence the $150k portions or $300k buy out from my siblings
So you own 25% and your parents own the remaining 75%?
Yea, that's the arrangement. And per their trust they have apportioned all their assets and real estate to be divided in thirds between my brothers and I. So once the trust in enacted my portion ownership would be 50% and my brothers 25% each

Carefreeap
Posts: 2364
Joined: Tue Jan 13, 2015 7:36 pm
Location: SF Bay Area

Re: Creative gifting of property

Post by Carefreeap » Sat Jan 06, 2018 6:34 pm

jplee3 wrote:
Sat Jan 06, 2018 1:11 am
Carefreeap wrote:
Mon Jan 01, 2018 9:36 pm
jplee3 wrote:
Sun Dec 31, 2017 6:38 pm
Carefreeap wrote:
Sun Dec 31, 2017 4:55 pm
Sandi_k wrote:
Sun Dec 31, 2017 11:14 am


Nope, that's correct. In every instance, it would be better for property transfer to happen after at least on of the parents passes, based on community property state and the accompanying step-up in basis.
Agree with this approach. And I wouldn't mess with trying to assign value and a son to a property and equalizing the equities until that time. It could be 10 years before one of them passes and the numbers could be completely different.
Yea I was gonna ask about how they would assign value out if one of them passes and the other gifts properties that may appreciate (or depreciate) from that time to the time that they then pass. How much "equalization" could you really do at that point? I guess that's still sort of a question I have regardless in terms of equalizing equities - how do you deal with appreciation?
You don't. If the remaining spouse chooses to sell and distribute the proceeds to each the three children, the proceeds are then the responsibility of the recipient. The recipient can choose to spend, reinvest, or something in between.

I was wondering more along the lines of if the surviving spouse gifted or privately sold the properties to us (as opposed to selling them for cash - that would make things easy if we just wanted to take the cash, but some of us may want the actual properties).
You'll want to re-evaluate at the time. A lot can change in 10 years. You might still be in the same building or make a move to the 'burbs. If your brothers are out of the area they probably don't want to be managing a rental from long distance unless they plan on moving back to the area.

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