Legal Question in Real Estate Law in California

You need to re-post this question to the probate and estate planning attorney section. There is a change in the estate and gift tax laws this year, and you need to determine how that might affect the "gift" of the house to you by your parents. Until they both pass away, any transfer to you without "consideration," or money changing hands is going to be a gift, and may be subject to taxation. Consult with an attorney who handles estate planning matters.

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Even without the gift tax issue, which exists to avoid exactly what you are trying to do: transfer before death to avoid estate taxes, there are other tax consequences that make it very unlikely that you would want to do what you suggest. There would be documentary transfer tax to pay on the transaction. It would also be a disadvantageous transaction from a capital gains standpoint. When you inherit property your tax basis becomes the value at the time you inherit. When received as a gift, the basis is what your parents paid for it. So if your parents bought the property 15 years ago for $400,000, and even after the current crash it is still worth $900,000, and five years from now after prices recover you sell it for $1,000,000 your capital gain would be $600,000 if you receive the property as a gift now, but ony $100,000 if your parents die at current prices, and $0 if they pass away in five years and you immediately sell it.

This property has probably appreciated quite a bit over what it cost your parents, so there is a lot of built-in capital gains which represents a big taxable gain if you get it as a gift, then sometime in the future sell it. You'll reduce those taxes by thousands upon thousands of dollars by being patient and inheriting, either by will or through their living trust (which would avoid probate).