Under current tax law, an individual can gift up to $13,000 each year to any individual with no taxable consequences to anyone. If you and your spouse gift to your child and his or her spouse, that gift can total $52,000-a sizeable down payment.
Couple this notion with one of the options below for creative financing:
An estate whose duration is limited to the life of an individual (usually the party holding the life estate), and a legal arrangement whereby the "life tenant" during his or her life retains use (the rights to rents and profits), possession of the property and costs of maintaining the property. The life tenant cannot sell or waste the property without the consent of the "remaindermen".
1. The life tenant has the legal right to remain in her house for as long as she lives. Whereas, if she transferred her house outright, the new owner could legally sell the property the next day forcing the previous owner to vacate the premises.
2. The property immediately passes to the remaindermen without the necessity of a probate proceeding.
3. A life estate is useful for purposes of Medicaid eligibility and protection from Medicaid recovery by the state.
4. Downside- Pursuant IRC Section 2702 the gift tax value is the full value of the property, without any discount.
Qualified Personal Residence Trust (QPRT):
A QPRT places a residence in a trust either for the benefit of one's spouse and children or for a charity. This type of trust was created and passed by the US Congress in 1990, when concerns arose about inheritors of a house having to sell gifted property because they couldn't pay the taxes when ownership was transferred to them. A qualified personal residence trust can apply to a primary or secondary residence and can significantly decrease taxes at the time that the residence is inherited.
Since the gift is not transferred immediately its value is not equal to the value of the residence at the time the QPRT is created. Rather the value of the gift is based on the value of the future right to own the residence at the end of the specified term of years. This may make the gift value as much as 25-50% lower than the actual retail price of the house at the time of the transfer.
Gift to your chldren, live in your home, pay less taxes. There are some creative options out there!