"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote
- quote -

Okay. And it does appear from a quick search that the $1mil is correct.

Thanks.

Caroline wrote:
- quote -

Caroline,
As Skip & Rich wrote, you pay tax only after the > $11k gifts exceed $1
million over your lifetime. Really, the intent of the gift tax is to
make sure someone doesn't evade the estate tax by giving away all their
money (especially "deathbed gifts").

For a resource on these topics you might want to get a copy of one of
the estate-planning titles from Nolo Press, such as "Plan Your Estate."
Those give an excellent overview of all of these issues...see
www.nolo.com, or most big bookstores in CA seem to carry them.

-Tad

"Caroline" <caroline10027remove[at]earthlink.net> writes:

- quote -

You're not understanding how the gift tax system works.

Not a cent of gift tax is paid until a person makes more than
$1,000,000 of lifetime taxable gifts (I believe $1mil is the current
figure -- someone can correct me if I am wrong).[*]

So when one makes a gift of a present interest of more than $11,000 to
a person in a year (a gift of a future interest is fully taxable
regardless of amount) , that excess is a taxable gift. The giver must
file a gift tax return and report that taxable gift, but will (no
choice allowed) use some of the $1,000,000 "exemption" to wipe out the
tax on the gift and so will pay no tax until the "exemption" is
completely used up. The use of some/all of the "exemption" while
alive will reduce what is shielded from estate tax at death.
[*] It's not actually a $1,000,000 "exemption". It's actually
a unified gift/estate tax credit equal to what the gift/estate
tax is on $1,000,000 of taxable transfers. You actually do compute
the tax liability on the taxable gift, but then must use your available
unified gift/estate tax credit to zero out that liability, which of
course reduces the future available credit by that amount. To a large
degree how you view this is a matter of semantics, but it does have
one real outcome -- even though the advertised bottom tax bracket
is around 19%, once you have to actually pay the tax out-of-pocket,
you're paying around 37%, since by the time the credit is used up,
you've moved into a higher bracket.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

On 16 Apr 2004 09:05:08 GMT, "Caroline"
<caroline10027remove[at]earthlink.net> wrote:


- quote -

Gift tax reporting is required once a gift excess the annual limit
($11,000). Actual taxes are only incurred onces those lifetime
cumulative excesses exceed the unified credit equivalent (currently $1
million.)

-HW "Skip" Weldon
Columbia, SC

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

I'm not really following you but nor do I want to be a PITA.

The federal gift tax is supposed to be paid when one gives anything worth over
$11,000 to another person.

Unless there's some legal leger-de-main one can do with deeds and gifting, I
don't see how a gift tax wouldn't be triggered by adding the son's name to the
deed.

I tried googling and only came up with the reality that if you give real estate
to someone, it is a gift. If it's value is over $11,000, then the federal gift
tax might be triggered.

But again, I don't want to be a PITA. Just curious from an academic standpoint
and from the standpoint of someone increasingly involved in this sort of thing
with my relations and trying to keep the family legal costs low. That is, we go
in prepared.

snip--no dispute
- quote -

Gawd, just make it into an SAT math question. ;-)

- quote -

Pity, given CA has one of the highest income and sales tax rates in the country.
;-)

Caroline wrote:
- quote -

I think you know this but in the OP's case there wouldn't be any gift
tax. If he went through with the deed name change, his lawyer would
hopefully remind him to file the reporting form with his tax
return...but that's about it. Few people who need to address the gift
tax trigger more than the reporting requirement, at least under the
current mix of gift & estate tax laws.

- quote -

Yes, that's my bottom line on the gains issue (generally), that
inheritance is best for appreciated property - it's one of the freebies
in the tax code, and a very effective wealth-preservation tool.

The deeding idea actually sounds like a bar exam question because of all
the basis and gain scenarios that could result depending on the state
and the dates of death (not in CA tho, no tax section on that exam!)

- quote -

Amen!

-Tad

"TB" <borekfm[at]pacbell.net> wrote
- quote -

It does not trigger capital gains taxes until sale, true. But are you forgetting
about the Federal Gift Tax?

I'm sure you're acquainted with it. For others, overview at
http://www.irs.gov/businesses/small/...=98968,00.html , among other
sites.

snip

Getting back to capital gains taxes:

So "trigger" is the key word in your statement. That is, capital gains taxes are
not triggered when property is transferred; they are triggered upon the
recipient's sale of the property.

But the original poster says the idea is for the disabled son (or his
representative) to sell the property immediately after the last remaining parent
dies. This means if the son were deeded the property (not willed it), he would
have to pay appropriate capital gain taxes.

Maybe something got lost in the context here, and if so pardon me, but it seems
to me the focus should definitely be on *not* adding the son's name to the deed
and instead leaving him the property in the will.

Of course, after all this confusing chatter, he might be best served going to a
reputable estate attorney.

Caroline wrote:

Rog350 wrote:
- quote -

& I replied:
- quote -

Making a gift of appreciated property does not trigger taxes at the time
of the gift. When you make a gift you also hand over your cost basis and
holding period to the recipient. The gains are taxed when the property
is sold. The taxes might not be avoided, but at least they'll be delayed
and perhaps paid at a lower rate.

This can be used to your advantage. For example, if you own stock with a
cost basis of $500 whose current value is $4,000, you might gift it to a
child (age 14 or over) who has low or no income to lower the taxes paid.

But remember, if appreciated property passes by inheritance instead of
by gift, then the whole thing is stepped up in basis. If, say, you are
joint owner with someone and pass away, only half of the property gets
the step-up (unless it's community property). So gifting might give up
that step-up tax benefit.

I don't want to complicate the topic but when planning gifts it's
important to understand local law on property transfers - it's not
always obvious when a gift is considered "completed," and exactly what
is transferred. For example adding a name to a JTWROS bank account
becomes a gift only when the "recipient" actually withdraws funds, at
least in states I'm familiar with. And in a community property state you
might need to consider the ownership interests of a spouse to determine
how much of a property is actually available to be gifted away. With
real property it can get complicated...for some examples look at the
Gift section of the IRS publication "Basis of Assets."

-Tad

"TB" <borekfm[at]pacbell.net> wrote
- quote -

Again, Tad is right on this point. Re-read his first post on the subject.
(Ignore my incorrect response to his post.)

Federal tax law is set up so as to give heirs a huge tax break on capital gains
inherited.

- quote -

Tad, can you explain this? Why isn't adding someone's name to the deed viewed
(ultimately) as a gift, and so subject to capital gains taxes and possibly gift
taxes?

Most tax law has a rationale behind it. You seem to be proposing adding
someone's name to a deed (or otherwise arranging for another person's ownership
of the property) is a loophole one may use to avoid capital gains (and gift)
taxes. That would surprise me.

- quote -

To the original poster: Do you now have a will? Have you even ever talked to an
estate/probate attorney? Are you trying to complete a do-it-yourself will? Do
you feel you cannot afford an attorney?

I get the sense you're trying to avoid an attorney. I can't blame you, but if
this is the route you're taking, with all due respect I think it's going to take
more study on your part.

Also, if by chance you qualify as "impoverished," there are resources that may
offer probate assistance to you at a reduced cost. Just ask.

rog350[at]webtv.net wrote:
- quote -

You were misinformed on that - there would be no capital gains taxes if
your son inherits the condo.

I am starting to think just adding his name to the
- quote -

Adding someone to a deed doesn't trigger any capital gains taxes, nor
does inheriting.

I strongly suggest that you pay for an hour of an attorney's time to get
some recommendations on this, rather than using this newsgroup. This
isn't an easy question to answer and you're getting a lot of
misinformation. Again I think some questions to address are the effect
of your choice on your son's qualification for disability and your own
qualification for Medicaid, should that be needed at some point to cover
long-term care.

-Tad

<rog350[at]webtv.net> wrote in message
news:13473-407CC021-82[at]storefull-3298.bay.webtv.net...
- quote -

There will not be any capital gains taxes owed by you as long as you live in
your home. The first $250,000 of gain on a home is tax free. Others may
comment on whether there would be cap gains taxes on your sons portion since
he did not reside there. There has been much discussion of probate. You
might check to see what the laws in Florida are. California does not require
probate for estates less than $75,000 (or at least that was the case 10
years ago), so your condo may not have to go through probate.

Elizabeth Richardson
- quote -

Its seems from all the discussion from some very informed people that
there are many different ways of leaving my son this property, there is
no simple answer. Since he may be responsible for capital gains taxes
even with a will, I am starting to think just adding his name to the
deed with my wife and I may be one of the best ways of doing this while
avoiding probate at our death. So as I figure it he would be
responsible for the capital gains taxes of 1/3 of the property when we
added his name or 5% of $20,000. When my wife or I died he would be
resposible for another 5% and later when the last one of us died he
would need to pay the last 5% capital gains tax. Maybe he would also
need to pay 5% to Massachusetts where he lives also ?? I think this
would be about $2000. each time X 3
for a total of $6000. Although not free from any cost I think he would
own it free and clear when my wife and I past away ?? Any comments
welcome !!!


Roger Houle

"BMS" <mcfarland[at]yahoo.com> wrote
- quote -

So is the tax rate.

But it's really moot, since the eventual decedent here lives in Florida. (The
disabled son lives in Massachusetts.) Florida's estate tax is the one of
concern.

- quote -

independently.)

- quote -

Of course. But the fewer the items in the estate, the easier it is to process
through probate.

- quote -

Something like that. ;-)

So much of an executor's time is spent simply accounting for all assets,
including contacting the appropriate institutions and transferring control to
the executor. The fewer items there are, the smaller the executor's burden.

Everything below is incorrect - see my prior post.

Caroline wrote:
- quote -

"Caroline" <caroline10027remove[at]earthlink.net> writes:

- quote -

True, but largely irrelevant. The basis of whatever the decedent
owned is reset to FMV on day of death. So any capital gains
the estate sees upon sale of assets will be small to non-existent
[see below].

- quote -

It doesn't matter, due to the basis reset.

- quote -

Person owns asset with basis $10,000. On the day the person died,
asset was worth $100,000. Estate later sells it for $100,500. Estate
has a whopping $500 taxable capital gain. NOT a $90,500 gain.

- quote -

I disagree.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Scratch my first response to Tad's post. It is wrong.

Tad's right about the stepped-up basis at death (and so the advantage of
inheriting vs. being gifted an asset). As he said, the only possible capital
gain (for the estate or the son) will be the difference between (1) the value of
the condo *at the date of death* and (2) the value when it is sold sometime
after the death.

My apologies to the group.

Roger,

If you want to e-mail me directly and I will give you some direction.

<rog350[at]webtv.net> wrote in message
news:11733-4079C9CC-3[at]storefull-3295.bay.webtv.net...
- quote -

"Tad Borek" <borekfm[at]pacbell.net> wrote
snip
- quote -

Two comments:

1.
The estate has to pay any capital gain taxes owed, be the taxes on the
dissolution of stocks, real estate, whatever. But the son is the sole heir to
the estate. This means that ultimately any capital gains taxes will come out of
his hide. In other words, the son gets a smaller estate because of cap. gain
taxes.

2.
It's still not clear to me whether, upon the death of the remaining parent,
there is the $250k cap. gain exclusion that would exist if the remaining parent
sold before he/she died (and met a few other conditions). I'm betting there is
this exclusion. But I'd ask at misc.taxes, etc. as I posted before.

- quote -

In the overall accounting of the estate, it's not a benefit. Someone or some
entity always pays the capital gains tax. What is left to the heirs is smaller
as a result. So heirs do not necessarily come out ahead just because they
inherited rather than received a gift before death.

Massachusetts re-established its estate tax and the levels are lower than
the federal.

Also it is the value of the estate that decides, not the item count.

Express probate, 12 items or fewer?


"Caroline" <caroline10027remove[at]earthlink.net> wrote in message
news:Tdfec.5144$k05.4181[at]newsread2.news.pas.earthlink.net...
- quote -

rog350[at]webtv.net wrote:
- quote -

Roger,
As others have written, capital gains taxes aren't much of a concern,
but for different reasons than they wrote.

Let's say a condo that you bought for $40k is worth $60k today and $70k
when your son inherits it. Your son's "cost basis" would be $70k -
that's called "stepped up basis." Whether he sells it or the executor
sells it, there's no taxable gain unless it sells for more than the $70k
cost basis. Stepped-up basis is the big income-tax benefit associated
with inherited property. Given the choice, you usually want to inherit
property rather than receive it as a gift.

If you and your wife own the condo jointly, there's also a basis step-up
when the first of you passes away. In a community property state like
California it's stepped up to the value on the date of death, in other
states only 1/2 of the property gets the basis step-up. So if one of you
passed away tomorrow, here in CA your basis would become $60k; in
"separate property" states it would become, if I remember the rule
correctly, $60k/2 + $40k/2 = $50k.

[And before inheritance...if you sell your $60k home that cost you $40k,
there's no tax on the gains under current tax laws, which exempt from
tax the first $500k in gains on sale of your home if you're married. But
if you give the condo away to your son, he gets your $40k cost basis and
at sale of the condo, would pay tax on any gains above that figure.]

But forget about capital gains taxes...the bigger issues are the effect
of your condo decision on disability income for your son, and on your
own eligibility for Medicaid. Disability has been discussed already. On
the latter point...if your $60k home is your only asset, then a decision
about what to do with it must incorporate your own plans for long-term
care for you & your wife - it's likely that at least one of you will
need it in some form.

It's possible that there might not be a condo to pass to your son,
because you'd sold it. Or that you were able to keep it until both of
you had passed away, but the state might seek recovery against your
estate (for benefits paid). Or that putting the condo into a trust for
your son might affect your own eligibility for Medicaid.

These aren't easy questions to address - I recommend you consult with
someone familiar with the relevant laws of your home state as well as
the state where your son resides. The state agencies that administer
these programs would be a good start, and there are attorneys who
specialize in this area as well. I believe AARP has some resources also,
you might try calling them or looking around on the web site.

-Tad