Dan Evans <dan[at]evans-legal.com> wrote:
- quote -

As (bad) luck would have it, my mother very unexpectedly
passed away in December as a result of an accident, less
than a year after the real estate transfer. I understand
the house will be included in her estate for federal
inheiritance tax purposes (estate too small for any tax) and
I guess it will also be for Penn. inheiritance tax purposes.
Will my sister also get the stepped up basis as of mother's
death?

d.

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d[at]noospam.com (d.) wrote:

- quote -

The lower ($11,000) gift tax exclusion applies to all gifts
of a "present interest." Gifts of more than that are not
excluded - it's just that no tax is due until all gifts made
during her lifetime (over the exclusion amount) amount to
more than the lifetime exemption (which should be $1 million
for people dying after 2010.

When your mother dies, the amount of the gift will be
included in her taxable estate for purposes of calculating
any estate tax.

The one downside is that, if your mother continues to live
in the house for the rest of her life, it could be
considered a retained life estate. In that case the value
of the house will be included in her estate based on the
value on her date of death rather than the value on the date
of the gift.

Stu

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[at]noospam.com (d.) wrote:

- quote -

Correct. A gift tax return should be filed for gifts in one
year to any one person in excess of $11,000, but there is no
tax due because of a lifetime exclusion of $1,000,000.

And there is no Pennsylvania gift tax, no realty transfer
tax on a transfer from parent to child, and no Pennsylvania
inheritance tax as long as your mother lives for one year
after the transfer.

The biggest potential tax issue is that your sister's income
tax basis in the property will be the same as your mother's
basis, which could result in gain if the property is sold
some day and there is no exemption for sales of residential
property. (The house would get a new income tax basis on
the death of your mother if it were part of her gross estate
for federal estate tax purposes even though no estate tax
was payable.) However, your sister could consider that to
be an acceptable risk in order to avoid Pennsylvania
inheritance tax.

*Dan Evans
*"One is not superior merely because one
*sees the world as odious."
*Francios Rene de Chateaubriand (1768-1848).

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d[at]noospam.com (d.) writes:

- quote -

Yes. She'll have to file a gift tax return for the year of
transfer, but there will be no tax due because of the
unified credit.

This may not be a good thing for your sister because of the
stepped up basis for inherited property. Your mother really
ought to consult an estate planner.

Phil Marti
Topeka, KS

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My mom lives in Pennsylvania. Some tax expert has told her
she can give her house to her daughter, my sister, with no
gift tax payable as long as it is less than $1 mil. The
house is worth about $250k, with a $50k mortgage. My sister
has lived there a about 18 months, and basically plans to
buy the mortgage, with the house (the equity) as a gift.
Mom should live several more years, and her total estate
will be less than $1 mil, even if it included the house.

Is this correct? Does a lower annual gift tax limitation
not apply here? The rest of the family is fine with the
transaction, but it probably wouldn't fly if gift taxes
were due.

d.

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