Gift tax

What is the name of your state? CA

The facts of the situation are these:

--Grandparents A (grandfather) & B (grandmother) own a home (their only significant asset) appraised at $500,000 (mortgage totaling ~$300,000). Grandparent A passes in 2007, with a significant amount of debt (~$25,000 credit cards and such).

--Grandparent B cannot afford mortgage/debt payments on her own (this was a problem prior to A's death, but that is another story)

--Grandparent B desires to re-finance her house (consolidate debt), increasing said mortgage to $325,000. In order to afford the new mortgage payment, she desires to include grandchild C on the related mortgage.

--Mortgage broker has informed grandparent B that it will be a significant challenge to include grandchild C on said mortgage, as grandchild C is currently not on title to the related property.

--Property taxes are currently being paid via prop 13.


My question(s) is this:

If grandparent B was to include grandchild C on title, would that be considered a gift and subject to gift taxes?

If so, would it ever be required to be paid? (I believe there is a floor of $1,000,000 "lifetime umbrella exclusion" and I don't believe such grandparent will have an estate totaling > $1,000,000 at the time of her death).

Lastly, if grandparent B is still alive, does adding grandchild C to title cause prop 13 issues?

Any thoughts you have would be great.

Many thanks

Yes it would be a gift and a return would need be filed. The normal rules don't apply as this would be under the Generation Skipping Transfer Tax, but you are right in that you would probably pay no tax.

Propositon 193 gave the transfer from grandparent to grandchild to be exempt from reassessment as long as the credit is claimed within three years.

tranquility said:

Yes it would be a gift and a return would need be filed. The normal rules don't apply as this would be under the Generation Skipping Transfer Tax, but you are right in that you would probably pay no tax.

Propositon 193 gave the transfer from grandparent to grandchild to be exempt from reassessment as long as the credit is claimed within three years.

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I agree with this answer IF, Grandparent B really wants to deed half of the property to grandchild C....and if Grandparent B can really afford the mortgage.

However, if Grandparent B really doesn't want to do that, or really can't afford the mortgage, then selling the home and Grandparent B moving into more affordable housing might be a better solution.