My parents are interested in "gifting" me a piece of their property. They have 60 acres but they still have a mortgage on the house. They were wanting to give me 15 to 20 acres of property to build on. Is this possible? They are also contemplating refinancing the house soon. Would that make it easier or harder? Thanks
2 Answers from Attorneys
Lawyers generally advise against parents "gifting" real property to their children during their lifetimes, recommending instead that property be passed down by living trust, or by will. There are substantial tax benefits in so doing, involving not only the gift taxes (state and federal) but often more importantly, the higher capital gains tax that would be due when the child done eventually sells the property.
In addition, gifting away 15 or 20 acres out of 60 would undoubtedly require a lot split, unless the 60 acres is already two or more legally-recognized parcels that haven't been merged. It would therefore be advisable to consider the likelihood that a lot split could be obtained under the current rather tough rules and regulations of the Subdivision Map Act. I'd suggest taking a close look at the zoning and the county's policy.
All in all, I think there may be a better, wiser way to accomplish family goals than attempting a lot split then doing a gift. I recommend that your family visit with a local lawyer who knows something about the county (or city) policy affecting the proposed lot split, but primarily one who knows about the tax consequences of gifts, estate-planning concepts, and the like.
I agree with the comments by Mr Whipple. In addition, it is unlikely that the lender will permit such a transfer if the note or deed of trust contains a due on sale clause. You will need to check on that .
I agree that the best approach is to consider comprehensive estate planning, and determine the goals in the proposed transfer, then examine the complexities involved. Keep in mind that a gift tax return will be required if such a transfer is made.