Do I add my granddaughter to the house title or have the house retitled to my Living Trust to minimize the gift tax liability?

I am 71years old and just recently bought a very modest $70,000 home for my granddaughter and her baby. The house has less than $1,000 equity. The 30 year mortgage payment is $560 per month which is about $100 less than what we would pay for a 2 bedroom apartment here. Along with my 2 sons, she is in my Will and Living Trust. The value of my estate is less than $1,000,000. I want to pay off the mortgage in 10 years by paying an additional $6,000 each year. How can she avoid paying gift tax on the equity (approximately $12,768 times the number of years I live beyond today)?

Asked on November 27, 2011 under Real Estate Law, Indiana

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Your granddaughter would not have to pay a gift tax if you gave her more than $13,000 per year, you would. The best way to gift the property that you bought to your granddaughter tax free is to gift her a percentage of the property via a gift deed which is recorded and submit a gift tax return of $13,000 per year, each year until the percentage that you retain is reduced to zero.

The problem is that you do not have $13,000 in equity in the home presently but will have some equity by paying $6,000 in principal each year beyond your monthly payments. I suggest that you consult with a Wills and trust attorney to implement the process I suggested above. From what you have written, you would be able to gift $6,500 or so a year percentage wise in the property to your granddaughter.


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