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Transferring real estate from parent's living trust to child and using gift tax exemption

Fountain Valley, CA |

My parents have an investment real estate property in their living trust. They want to gift the property outright to me (only child). To take advantage of the gift tax exemption, can we transfer ownership with 1 grant deed from their trust to me? Or do we need 2 grant deeds, one to transfer from trust back to my parents, and then transfer to me?

Attorney Answers 4

Posted

The other attorneys make valid points. However, with the understanding that I am not providing legal advice to your specific situation, in general your parents should do a transfer such as this in two steps: first, they take the property out of their trust and into their names, as community property, then step two is for them to convey the property to you. The reason for the two steps is to take advantage of the specific exclusions from property tax reassessment that are available for transfers to/from revocable trusts (step 1) and for parent-child transfers (step 2).

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Posted

Thanks Brian for the very helpful answer. The parent/child property tax reassessment exclusion is exactly what I'm looking to take advantage of. I just found the below info on the CA gov site. Do you think it still means that we need to do 2-step transfer? Or do they only mean "via trust" then the trust grantor passes away? > http://www.boe.ca.gov/proptaxes/faqs/propositions58.htm#4 > Will a transfer via a trust qualify for this exclusion? > Yes. For property tax purposes, we look through the trust to the present beneficial owner. When the present beneficial ownership passes from a parent to a child, this is a change in ownership that is eligible for the parent-child exclusion.

Posted

What gift tax exemption are you referring to? $13k x 2? or are you talking about the Uniform Lifetime exemption determined as of the date of death?

Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

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Hi Curtis, yes I am referring to the Lifetime Gift Tax exemption ($5M per donor expiring end of this year)

Curtis Lamar Harrington Jr

Curtis Lamar Harrington Jr

Posted

That exemption is what it is when someone dies. It will supposedly go away automatically, and back to $1million unless congress acts. Because the smaller exemption is independent of the lifetime, I encourage donors to give smaller pieces for a long time. This is one of the reasons that estate people need to sit down with their clients YEARLY or TWICE YEARLY. Put it another way, you may as well have your professional go over "everything" in a periodic checkup rather than try to make a point correction. You might be like "spotting a snake in the woods" while ignoring the 2000# grizzly about to jump on you.

Posted

Be careful here. This may or may not make sense based on your particular facts. If they gift this property to you during their lifetime you take a carryover basis. If this basis is really low then this may not be a good idea as you would get a step up in basis if you recieved it via an estate. So you have to see what the capital gain (and ordinary income recapture) may be and run the numbers. YOur parents need to get with an estate planning attorney to get a comprehensive estate plan strategy here.

If you need more insight into this topic please read Gift Giving: Tax Advantages at the following link http://www.sjfpc.com/gift_taxes_planning.html

For more on estate planning and other issues, see Estate Planning Mistakes: 5 Not So Easy Pieces at http://www.sjfpc.com/estate_planning_drafting_wills_trusts.html. Please hit the like button at the end of the article if you found it helpful.

For more on talking with aging parents about this topic please read Estate Planning For Elderly Parents: Discussing Finances and Estate Planning with Your Aging Parents at the following link:
http://www.sjfpc.com/estate_planning_for_aging_parents.html. Please hit the like button at the end of the article if you found it helpful.

LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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Posted

Mr. Fromm is correct. You need to be very careful in how you do this. The carry-over tax basis versus the stepped-up basis for tax purposes. Your most prudent course of action would be to have your parents consult with an estate planning attorney to draft a comprehensive estate plan for your parents.

When responding to questions posted on Avvo, I provide a general purpose response based on California law as I am licensed in California. In reviewing my response, you are specifically advised that your use of, or reliance upon any response I provide is not advisable. I do not have all relevant background details or facts related to your issue / matter, thus I am not in a position to give you legal advice. Further, your review, use of, or reliance upon my response does not establish an attorney-client relationship between us nor does it qualify as a legal consultation for any purpose. For specific advice regarding your particular circumstances, you should consult and retain local counsel.

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