Legal Question in Real Estate Law in California

Re: Gift deed problems ?

Handing down California real estate presents at least four planning problems for the donor:

1. Avoidance of reappraisal and loss of the Prop. 13 property-tax hold-down. This is rather easily avoided in a mother-to-sons transaction; about all you need to do is meet your county's paperwork requirements to timely claim the exemption.

2. The Federal and state gift and estate taxes. There is a stiff tax on large gifts during the lifetime of the donor. The tax is avoided (and may become an estate tax instead) by passing the property on by inheritance (under a will or trust). Since estate taxes are generally much lower, and in some cases will be zero, it is usually much better to turn a gift into an inheritance by not making the transfer inter vivos (during lifetime).

(3) Capital gains taxes. There are three values that may go into the calculation of capital gains taxes due when the donee or heir eventually sells mom's (former) lot. (a) What mom paid back in 19XX; (b) what it was worth when she died; and (c) what you sell it for in 20XX. If you got the lot as a gift, you are taxed on (c) - (a), which will be almost the entire selling price. If you got the lot by inheritance, you are taxed on (c) - (b), a much lower number. The difference between (a) and (b) is called a "step-up in basis."

(4) Probate. Property acquired by will or by intestate succession (no will or trust) goes through probate; property passed by gift or trust should avoid probate.

Congress often tinkers with the tax laws, and estate taxes in particular are in constant flux. However, most estate planners are recommending use of living trusts as the wise way to pass appreciated property to the next generation.

Re: Gift deed problems ?

You don't do it. Appreciated assets should be gifted through a death transfer so that the recipients receive a stepped up basis for tax purposes. It is tax foolish to carry out your plan. If there are less than $2 million in wealth in mom's generation she can learn all she needs to know in my book, "Create Your Legacy & Save the American Middle Class", written for the lay public on estate planning issues. You can get it on Amazon.com or www.IWant2CreateMyLegacy.com. If one buys the book on the latter site, you can also find there my free special report,the 7 most common mistakes made in planning for the inevitability of death and the likelihood of disability. The book also provides sample forms in plain English.