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Gift or Living trust?

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M

Monquie

Guest
What is the name of your state? Washington, but the home is in Mississippi.

My husbands father wants to give us the house he grew up in. This house has been empty for the last 2+ years. Without going to a lawyer, we are wondering what form of transaction would be least financially damaging to everyone involved? Gift vs. living trust? etc. Is there a website that explains the difference? Also, will we need it assessed? I'm new at all this so bear with the silly questions. Thank you!
 


abezon

Senior Member
A gift gives you the house to sell immediately. You will pay capital gains taxes on the house when you sell it. Your basis will be your father-in-law's basis (what he paid for the home + major improvements + any adjustments). There will be no gift tax due as long as the house is worth less than $1M. Dad will have to file a Form 709 gift tax return but won't have to pay anything. When Dad passes away, his estate will be able to exclude paying taxes on $1M - the Fair market value of the house.

With a living trust, the trust owns the house until Dad dies. Then the trustee conveys the house to you. The fair market value of the house is included in Dad's estate, but the $1M exclusion will probably cover the house & any other assets Dad has. The living is a way to avoid having to probate the house. It would be useful if Mississippi bases its probate fees on the value of the probate estate, or if Dad's main asset is the house and you can avoid probate entirely by not having the house in the probate estate. You will need to set up the living trust in Mississippi. With a living trust, you get the house at its FMV at the time of Dad's death. If you sell immediately, you will pay no taxes because there will be no gain.

If Dad lived in the house for 2 of the last 5 years, it's better if he sells the house and gives you the money. He can exclude $250,000 of gains on the house.
 

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