Legal Question in Real Estate Law in California
My sister and I inherited a home from my parents in LA California and we hold title as joint tenants with the prop 58 tax exclusion.
I had my sister sign a grant deed in 2003 which I am trying to record tomorrow (time is of the essence since she is being sued).
The house was paid for at the time and my husband and I took a loan out to give my sister $225.000, we have also since then taken a second on the home (my husband and I are the only ones on the loans).
Originally my main concern was to keep the exemption but I'm told that my sisters half will have to be reassessed with a title transfer.
I'm told to consult a tax attorned or cpa to fill out the form because the county can not make a suggestion.
My question to you is...Is this a gift since I am stuck with the debt and is there someway to calculate the gift tax (since it seems to be a secret) or is this considered a purchase/value of trade or exchange and how will this affect my taxes? I'm not clear on what to put down for the PCOR form.
4 Answers from Attorneys
Time isn't really of the essence, because what you are doing is a fraudulent transfer of assets to avoid the lawsuit, and when the plaintiff in the lawsuit finds out they will sue to set the transfer aside. Maybe you will then join Sis as a defendant! Has Sis talked about this strategy with the attorney who is defending her in the lawsuit?
Let's start with the easy part. Giving away assets to avoid a judgment doesn't work, especially when it is real property which is so easy to trace. If you give away property without receiving equivalent value in return and it makes a judgment creditor unable to collect, it is what is called a fraudulent transfer, and in your case all you will get for your trouble is you will be dragged into either your sister's lawsuit or a follow-up lawsuit to reverse the transfer. If your sister has other assets to satisfy the judgement, then there is no benefit to the transfer, since the creditor will just go after those. So the short and sweet answer is there is no reason to rush into this. Time is not of the essence, unless there is something other than the lawsuit.
As for the rest of your question, it is a gift to the extent you do not give up equivalent value to match her equity. You have not provided enough information to begin to calculate what, if any, portion of the transfer would be a gift, much less what the tax consequences would be.
Fraudulent transfers are covered in the Civil Code at sections 3439 to 3439.12, and the code sections are relatively easy to find on line, and to understand by an intelligent non-lawyer. If you look them up (the California version of the Uniform Fraudulent Transfers Act) and read these sections, you'll get a sense that your proposed strategy will probably backfire. All participants in a fraudulent transfer are usually held to be 'in pari delicto' (equally at fault), so both the transferor and transferee will be tarred and feathered when the scheme is discovered, as is likely.
Get your sister a good defense attorney. Contact me directly.
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