Legal Question in Tax Law in California

Re: Gift tax?

Cookie, I didn't receive your e-mail. Perhaps you misspelled [email protected] or something else went awry. If you can, please resend the message (which should be in your e-mail program's "out" or "sent" box still!)

to [email protected], okay?

Re: Gift tax?

I assume you didn't write the subject line: "Gift tax?" when you wrote your message.

You didn't say how much the joint account was for; are you married? You and your wife can each "gift" (the IRS term for give or donate) to your child up to $10,000 per year without any gift tax ramifications. If you are married but the gift is from only one of you, you fill out a form 709A with both spouse's signatures and there are still no gift tax ramifications (but there might be some serious ones if you DON'T file the return!).

What is the size of your (and your wife's?) estate(s)? Include the full face value of both your life insurance policies, all your IRAs and other qualified retirement funds, and the full value of your home if you carry PMI or else just the equity in the home ... and the total is ... ?

Assuming you haven't made large gifts to anyone previously, there is no GIFT TAX due on a gift the size of which you speak, but there can be what I call a gift tax ramification in that your estate will, essentially, pay a higher tax due to any gifts over the 10,000 or 20,000 / year / donee (receiver of gift) that you made in your lifetime.

I'm not yet ready to answer whether you should you keep your name on the title.

With the down payment of $200,000, the $75,000 wouldn't need any cosigner, probably no matter what, and it doesn't take that large a salary to to support that size loan WITH income verification to get a lower loan rate. So, since you want to be free of liability personally, have her take the loan out by herself. That answers one of your questions. Now here's the good part:

Separate from the loan applicant is the title of the property. They don't have to be the same! So you can, if you like, to protect your interests and/or avoid a suddenly large tax ramification.

Was her $40,000 all your original contribution? That she paid taxes on the income doesn't make that much difference for gift purposes, nor even the fact that it's under her social security number; she's deemed perhaps to have contributed to the extent that she paid the taxes! (In fact, you could end up being held liable for the difference on that income between your rate and her rate of taxes, theoretically, at least.)

CONTINUED NEXT MESSAGE!!!

Re: Gift tax?

CONTINUATION OF LAST MESSAGE:

If yes, then you are making, really, a $200,000 gift to her; 180 or 190 of that amount if you give it all at once is deducted from your lifetime exclusion, essentially, thus increasing the estate tax by a fairly serious amount.

Furthermore, you risk losing your investment if she should decide to run with it or if a creditor, ex-husband of hers or an accident victim decides to sue her and attaches the house. It might be good to make the gift outright but it might be better to consider some alternatives.

Here in Mass., I might set up a real estate trust where each of you retains your original actual contributions to equity, but begin a pattern of "gifting" (sorry, IRS term!) annually in an amount of $10k or $20k / year to her; however, you can actually get discounts by setting up the right structure and really gift her a percentage that's worth, say $15k (or $30k) per year. As another entirely different sort of trust, you can use the IRC - defined "Qualified Personal Residence Trust" (QPRT, pronounced Q-PERT) to transfer a term-of-years-remainder to your child at a very steep discount, so, for example, you have use of the house that you buy yourself for, say, 5 or 10 years, then she gets it outright, and for this you might incur "gift tax ramification" of $50,000 instead of the $180 or $190 we talked about. (The rule is, though, that you have to outlive the term. There are other rules which may make this impractical for you, so don't get your hopes up on this one.)

All in all, you need an attorney qualified to deal with "FET" (Federal Estate and Gift Tax) issues. Let me know what city you are in and I can locate one -- well, many, probably ! -- who are already in estate planning trade organizations and aren't just jumping in to scoop you up. (Frankly, off the record, please!, lots more lawyers think they can do estate planning than are really qualified.)

It'd be best to answer the questions I left you above in an e-mail to [email protected] and I'll take it from there.

Re: Gift tax?

My e-mail address is [email protected] and my

fax number is (617)527-1763.

Please fax me your e-mail address plus whatever

else you tried to send me already.