Gifting a Home

[Joe Jones]

What is the name of your state? California
My wife's parents wish to pay off our mortgage. Each year they each gift us, in additon to their other two children and spouses, 11K each (44K each couple) per year. In addition, they wish to pay off our mortgage ASAP while avoiding as many taxes as possible and being mindful of tax consequences on an excess of of 3 million they wish to distrubute after they pass on.

The only soulution I see is for them to file a gift tax return on any gifts in excess of 44K given to us towards paying off the mortgage, which is an unattractive option due to the excessive taxes.

Is there a "tennants in common" tact, which I am completely unfamilier with, or other creative approach we might consider to lessen the tax burden for all of us.

 

[abezon]

No, they're stuck with $11,000/donor/recipient if they want to avoid gift tax returns. However, they could gift $$ to your kids as well, which you as the children's guardian could apply to the mortgage. TAlternatively, thhey could put up to 5 years' worth of gifts into a 529 plan to pay for the kids' college education. Talk to a financial advisor for help picking the best 529 plan.

 

[Joe Jones]

Thanks. We don't have any kids. Regarding the 529 plan, generally speaking, is this 5 years worth of gifts given in one lump sum. Can they gift my wife and I 220K (44K x 5) all at once?

Also, any insights regarding "tennants in common"?

 

[divgradcurl]

Also, any insights regarding "tennants in common"?

Who would be the tenants in common? Why do you think that would make a difference from a tax perspective (in this context)?

 

[anteater]

I think that abezon mentioned 529 plans in the overall context of reducing your parents' taxable estate.

Special rules for 529's allow one to lump 5 years' worth of $11K gifts into a 529 plan, which is a nice thing because that big lump-sum of money starts growing immediately tax-deferred if it is used for qualified higher education expenses. Actually, right now, it is tax-free if used for qualified higher education expenses. But that provision is set to expire in 2011 (or maybe it's 2010, I forget), although the consenus is that the tax-free provision will be made permanent. This is a good source for info on 529's, particularly the discussion boards:
http://www.savingforcollege.com/

All of which does not help you a whole lot with the mortgage payoff. The full allowed lump sum into the 529 will use up both of your parents' annual gifting allowance to both of you for 5 years. Any further gifts to either of you would need to be reported on a gift tax return. And, if the money in the 529 is not used for qualified higher education expense, the earnings are subject to income tax and penalty.

 

[dallas702]

Your parents and you could start an ongoing entity (such as a corporation, preferably a NV corp) where the assets belong to all the officers/shareholders and are not taxed as an inheritance. That has some advantages over private transfers of the assets.

 

[abezon]

It's also very complicated & easy to mess up. If they have all that spare cash, they can afford to hire an estate planner.

 

[dallas702]

Not as complicated as one might think, but certainly should be done with professional help. In the case of a $multimillion inheritance it could save hundreds of thousands, or over a $million in federal estate taxes.

Just search under Nevada Corporations. There are several sources of info, including the State of NV and some businesses who specialize in setting them up (for a fee of course).

 

[Joe Jones]

Thanks for your insights!