Legal Question in Tax Law in New Jersey

Capital Gain Taxation

If I transfer real estate into an irrevocable trust does this transfer of property generate a capital gain taxation event?

Asked on 4/14/03, 7:54 pm

3 Answers from Attorneys

Walter LeVine Walter D. LeVine, Esq.
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Re: Capital Gain Taxation

NO TAX IS GENERATED IF THE TRANSFER IS MADE AS A GIFT. IF YOU RECEIVE MONEY IN RETURN IT COULD BE CONSIDERED A TAXABLE EVENT. IF YOU MAKE A GIFT THERE ARE SEVERAL RAMIFICATIONS:

1. IF EACH RECIPIENT (BENEFICIARY) GETS MORE THAN $11,000 EACH OF VALUE, A GIFT TAX MAY BE INCURRED. 2. THE GIFT TAX DEPENDS UPON HOW MUCH OF YOUR LIFETIME GIFT EXCLUSION YOU STILL HAVE REMAINING (LIFETIME GIFT EXCLUSION IS NOW $1MM IN THE AGGREGATE). 3. A GIFT REQUIRES TRANSFERRED BASIS (I.E., YOUR COST BASIS BECOMES THE RECIPIENT'S COST FOR FUTURE SALE TRANSACTIONS).

QUICK EXAMPLE - YOU TRANSFER PROPERTY THAT HAS A COST BASIS OF $21,000 WORTH $75,000 TO AN IREVOCABLE TRUST WITH 3 BENEFICIARIES. IF COMPLETE OWNERSHIP IS GIVEN WITH THE TRANSFER, YOU HAVE MADE A $75,000 GIFT. $33,000 IS AVAILABLE FOR THE ANNUAL GIFT EXCLUSION, AND $41,000 COUNTS AGAINST YOUR LIFETIME EXCLUSION, UNLESS YOU HAVE USED IT TOTALLY ALREADY. IF AVAILABLE, NO TAX IS DUE. EACH BENEFICIARY HAS RECEIVED A GIFT WORTH $25,000 WITH A COST BASIS OF $7,000. IF THEY SELL THE PROPERTY, THEY HAVE A TAX (PRESUMABLY CAPITAL GAINS) ON $18,000 OF GAIN. THERE ARE MANY WAYS TO AVOID THESE CONSEQUENCES, WHICH DEPEND UPON YOUR MOTIVE FOR THE TRUST. YOU CAN CALL ME AT 973-377-3313 IF YOU'D LIKE TO DISCUSS THIS AND POSSIBLE ALTERNATIVES.

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4/16/03, 1:00 pm
Jonathan Chester Lindabury, McCormick, Estabrook & Cooper, P.C.
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Re: Capital Gain Taxation

I would need to know more facts about the trust, but in general, merely transferring property to a trust would not generate any taxable gain.

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4/15/03, 10:01 am
Benjamin Laves Benjamin S. Laves, Esq.
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Re: Capital Gain Taxation

There are different kinds of irrevocable trusts each one serving different puporses for both the Grantor and beneficiaries. Transfers of real estate generally require an appraisal to determine the value before you can determine whether or not there is a gain and then how that gain gets treated.

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4/15/03, 11:21 am

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