Financing early retirement involves a search for good advice; Gifts reduce taxes
Recently a couple deeded land and a house to a mother-in-law for a nominal amount and then immediately deeded it back to the original owners. Could she buy the property cheap and give it back as a gift to avoid taxes? Does she have tax advantages they don't? Can property be given in a living trust to avoid taxes? A. H.
Obviously, the exact details of the two transactions are not known, but giving a house and land could reduce taxes. Under current law gift and estate tax rates are the same. If a person gives a house to another, however, $6,000 may be excluded if his or her spouse agrees. Also, the value of the house is determined as of the day of the gift. If the person lives at least three years longer, the value remains out of donor's estate. If the house were included in the estate at the decedent's death years later, the appreciated value of the house would increase estate taxes over the value at the date of the gift. As for transfers at nominal value, the real market value will usually be used in determining gift or estate taxes due. The dual transaction you referred to may have involved a plan to pay off the house with annual gifts of $3,000 per person from interest-free loans where the high-income giver could benefit. Ordinarily, conveying property through a living trust has little effect on gift or estate taxes but does reduce probate costs and delays.