Understand the Financial Consequences of Gifting Property

Parents who plan on gifting property to their children should consult with a Florida estate planning attorney since there are usually tax consequences of such a gift, either to the giver or the recipient(s).

For example, let’s say you purchased the property you are planning to gift for $100,000 years ago and the value of that property has appreciated over the years to $400,000. If you gift that property to your children outright and they sell it, their capital gain on the sale would be $300,000. If they sold this year, they would be required to pay a capital gains tax of 15-20 percent depending on their tax bracket.

Say you left that same property to your children in your will. This would enable them to take advantage of the “step up in basis” on the property — meaning the tax basis is based on the value of the home at the time it is inherited. For this inherited property, there would be no capital gains tax to pay.

Another option for gifting property to children is through a qualified personal residence trust (QPRT). A QPRT is an irrevocable trust, and at the time it is established, the grantor must also determine a retained income period before ownership is transferred to the beneficiaries. The trick is to plan this time period so the grantor outlives the term – if the grantor dies before the term expires, the property is returned to the estate and becomes eligible for estate taxes.

Once the retained income period is over, the grantor pays rent to the trust, with the beneficiary becoming the grantor’s landlord. Rent payments are typically made to the trust through a brokerage-type vehicle so the beneficiary pays no income tax on the payments.

Before you transfer property, either through gifting outright or via your will or a trust, be sure you get the tax and legal advice you need to make that gift a welcome one for both you and your children.

The Estate, Trust & Elder Law Firm, P.L., provides attorney services ranging from estate planning for young families to advanced and crisis long-term care for seniors. Contact us for your initial consultation at one of our conveniently located offices in Fort Pierce, Stuart, Port St. Lucie, Vero Beach, and Okeechobee.

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