Have a Tax Question? Ask a Tax Expert
Good morning and thank you for continuing to use Just Answer. You can transfer the property today through gifts, either at one time or over a period of years. As the laws read today, you can transfer the entire property at one time to one person and probably not pay gift tax. One is not required to pay gift tax until they have made over $5 million in taxable gifts over their lifetime.
But if they sell it later, they would pay full tax on the gain?
If this property is going to several family members and is expected to appreciate, you could look into the FLP. I wouldn't advise this unless the property's value is in the millions. One never knows what the future holds regarding estate tax, so I advise you to enact the strategy soon.
They may. But unless the capital gains rates go back to the levels in the late 70s, their capital gain rates should be lower than the estate tax rates, if you are looking to have a taxable estate. I wouldn't be surprised if the taxable estate level is moved back to $1 million over the next five years.
But, if the estate is liquid and can pay the tax, the inheritors will receive the property at its fair market value at the time of death.
I would rather not risk it with estate tax. I don't like the uncertainty. I would rather transfer property beforehand via the trust. How is a living trust taxed? If I transfer property to it now, and the children are beneficiaries, what happens at the time of death? I understand that the trust property does not become part of estate
Unless the rules have changed, gifts made within three years of death are included in the estate. I am not sure about donations to living trusts. I am pretty sure this does not apply to FLPs. Is direct gifting appropriate with this property?
Yes, direct gifting is appropriate.
but generally, transfers to living trust are considered gifts? (I mean if not within 3 years of death)
Let me do a little research and get back to you. Ten to fifteen minutes. Thanks.
I think if you create an irrevocable trust, the property should not be counted in your estate. But, this is a very complex area, and I would consult with a tax/estate attorney in your state.
Ok, thanks. Let me read up on the trust taxation and maybe speak to an attorney. I do understand that this is a complex matter.