Can I avoid taxes on my inheritance if I receive it before my father passes away?

[ronaldbee]

What is the name of your state (only U.S. law)? California


If my father sells his house that he intended to leave to me and my two sisters in his living trust and gives my sisters and I the money now (before he passes) is there any way to avoid being taxed for that income?

 

[davew128]

What is the name of your state (only U.S. law)? California


If my father sells his house that he intended to leave to me and my two sisters in his living trust and gives my sisters and I the money now (before he passes) is there any way to avoid being taxed for that income?

Why would YOU be taxed on HIS income???

 

[LdiJ]

What is the name of your state (only U.S. law)? California


If my father sells his house that he intended to leave to me and my two sisters in his living trust and gives my sisters and I the money now (before he passes) is there any way to avoid being taxed for that income?

You wouldn't pay taxes, for the most part, either way. If he sells the house now and gives you the money, he might have to pay some gift taxes (or at least report the gifts) but you and your sisters would not be liable for tax.

If you simply inherit the house via his living trust, then you get a stepped up basis and therefore if you sell the house fairly promptly, its unlikely that you would have any capital gain, therefore unlikely that you would pay any tax (although you would have to report the transaction on your tax return).

The thing that COULD cause you a tax liability is if he puts the house in your names now, instead of selling it.

 

[HomeGuru]

What is the name of your state (only U.S. law)? California


If my father sells his house that he intended to leave to me and my two sisters in his living trust and gives my sisters and I the money now (before he passes) is there any way to avoid being taxed for that income?

**A: he can gift either property or cash following the threshholds. Check with your tax advisor.

 

[HaroldRoyer]

You don’t need to pay tax for the cash given by your father to you. It is a gift to you and your sister by him. You and your sister are not legally responsible to pay the tax.

 

[LdiJ]

What is the name of your state (only U.S. law)? California


If my father sells his house that he intended to leave to me and my two sisters in his living trust and gives my sisters and I the money now (before he passes) is there any way to avoid being taxed for that income?

There would be no tax implications for you. Your father would be giving you a gift and would have to fill out a gift tax return himself. If he exceeds his lifetime limit for gifting, (currently 1 million, I think) then he would have to pay gift tax, not you.

 

[tranquility]

The gift and estate tax have been unified and are the same. Now, the total lifetime amount transferred is the key for exclusion.

If dad sells his house and distributes it to his kids, he would get the section 121 exclusion and any amount over that and the basis would be taxed at capital gain rates. (Well, unless the home was used as a home office too.) If the money is gifted in 2013, dad has up to $5 million that can be transferred tax free--although a gift tax return would be needed. If dad died and house transferred, it would have a stepped basis bringing it to FMV at the time of death. If the house is going to have more than $250K in capital gains, it might be better, taxwise, to just wait and inherit it. (Unless one were trying to spend down assets for medicaid or other planning reasons.)