We are looking to re-finance Grandmas house with her so we can get on the loan + title. It is in a trust, revocable I think, and she wants to put her son on as co-borrower. He is a co-executor of her trust. We wanted to know what tax and other financial liability issues will crop up later on if we do this. Is there a tax reassessment, stepped up value (not sure what that is) or anything that will alert the IRS or the bank.
3 Answers from Attorneys
There are all kinds of definite and potential undesirable tax consequences of making a gift of real property during your lifetime. She really needs to talk to an estate planning attorney in person before she and he make serious mistakes.
There are numerous issues raised by your question. Why would you want to be on the loan and on title? What happens if a child or grandchild gets on title and is sued for something or goes into bankruptcy. Grama looses the house. Is there a reason Grandma needs money from the loan? Is this just to give the son money? Do we exepct Grandma to have no further financial needs? Are all the transferees children so that a transfer will not cause real estate tax reassessment if all the proper exemption claim forms are filed? If the proposed co owners will be grandchildren, real estate taxes will be reassessed at present fair market value.
There are a long list of questions. See an effective estate planning attorney before you do anything else. And start by telling him ofr her why, and what you are trying to accomplish. Your question doesn't really tell us what you are trying to do.
Making a gift of real property during the owner's lifetime is foolish, as Mr. McCormick indicates. It is much wiser for families, presented with the problem of passing down real property and desiring to maximize family wealth (and minimizing tax-collector wealth), to use wills and trusts rather than gifts during lifetime. Inheriting property is much better, tax-wise, that receiving it as a gift during the previous owner's lifetime.