Legal Question in Wills and Trusts in California
Giving away a $2.5 million dollar estate while still alive
My father in law, 89 years old, wishes to sell his house and move from California to Louisiana. He has three kids, all married, and he is beginning to go blind. Otherwise his health is o.k. but gradually deteriorating.
He has not put a living trust together and doesn't seem inclined to do so now. His California house was worth $3.5 million a year ago, and has declined to about $2.3 million today. This house is the bulk of his estate. His will is essentially to divide up estate into three parts and give each third to one of his kids.
Is there a way that he can get rid of his house today, give the money to his three children now, and have about the same overall taxes that the three kids would have paid had he died?
Other relevant information: His income is about $50K year and his kids make about $50K to $100K each couple. He has one grandchild. His house has property taxes about $4K year and requires about $10K in upkeep. He really wants to sell it for at least $3 million. He can't drive, and really needs to be with one of his daughters in Louisiana. She will buy a house and have him move in with her family, which his other two kids think is a great solution. His wife of 54 years passed away 4 years ago.
3 Answers from Attorneys
Re: Giving away a $2.5 million dollar estate while still alive
Thanks for your posting.
As another attorney mentioned, a trust is one of the best ways to do what you seek to accomplish. You can also set up a charitable trust, and get some tax benefits right away, or you can transfer a little bit of the property at a time to the parties through apportionment of the title or liens.
Thanks for the detail, and please feel free to email if you have more questions or need further information.
Re: Giving away a $2.5 million dollar estate while still alive
The problem with giving the property away while he is still alive is that a) the basis will remain the same, which means that the children would need to pay capital gains tax, and b) there would be a significant gift tax, as well.
Why wouldn't he want to form a trust? It is very simple, and could also offer some protection against estate taxes.
Give me a call Monday, and we can discuss alternatives. What you are proposing is not the answer.
Re: Giving away a $2.5 million dollar estate while still alive
Sorry for the late answer--this is in case the issue is still unresolved.
The property is probably best inherited at death, not given away during his lifetime. This is because:
1) The basis (for capital gains tax purposes) is "stepped-up" for inherited property, meaning there would be far less capital gains tax due than if the property was given away. Also, the estate tax exclusion is rising over the next several years, so inheritance would probably mean less estate tax as well.
2) He may need the money to take care of him during his life. Care of aging parents is extremely time-consuming if you do it yourself, and somewhat expensive if people are hired to do it. Things like assisted living are cheaper, and would probably be fine unless/until he needs full-time care.
3) He sounds like he may be more comfortable with the inheritance idea.
A living trust (with powers of attorney) would accomplish these objectives, and would allow for planning for his incapacity--it would also avoid probate court (probate of will, conservatorship for incapacity) and the expenses associated with that.
I hope this helps--review the tax consequences of the different approaches, but the above strategy will probably be the cheapest.
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