Gifting Theoretical Question

[Jerry1]

In my life, I gave my daughters a house and an education. DD1 did not want to go to school. DD2 did and I paid the full boat - about $100K. Later in life, DD1 had kids and needed to get into a house. I bought one for around $100K and thought to myself, that's good, I was fair to financially helping launch my daughters.

Recently, I formally gave the house to DD1. Prior to the change, me and DW were on the title, however, we only did that to protect DD1. Now we removed ourselves from the title and DD1 and her husband own the house outright.

It's no big deal, but the question of gifting our share of the house came up. Which, leads to my question. Why would giving DD1 a house be considered any differently than giving DD2 an education? Both were provided about $100K and both were adults at the time. Again, nothing is going to change, but it just made me wonder why they are thought of differently. Any ideas?

 

[MichaelB]

You're a good man and generous father, regardless of how the tax authorities see this.

 

[pacergal]

Who is thinking of them differently?
Unless they are looking at increased value in the house since you bought it.

To me, it seems equal to each child. $ towards education probably means DD2 has potential for higher income and purchase of house on her own when she is ready.

Personally, I wouldn't worry about it. But thats me.

 

[Alan]

You're a good man and generous father, regardless of how the tax authorities see this.

+1

We did similar. Cost about $80k to put our daughter through an out of Sate college and recently gave our son enough money to buy a house as he went in-State with enough scholarships to cost us next to nothing. We filed the gift tax form for the gift to our son.

 

[njhowie]

How old was DD2 when you paid for college? She was a dependent at the time, no? And I assume DD1 is not a dependent at this time, correct? So, in my mind, that's the difference whether gift or not. Paying for dependent education is no different than putting food on the table, a roof over her head, or any other expense for the child.

 

[MichaelB]

It's no big deal, but the question of gifting our share of the house came up. Which, leads to my question. Why would giving DD1 a house be considered any differently than giving DD2 an education? Both were provided about $100K and both were adults at the time. Again, nothing is going to change, but it just made me wonder why they are thought of differently. Any ideas?

One reason they may be viewed differently is the college expense is not money given to the child, it is money paid to the college on behalf of the child, while the house is a transfer directly to the child. In other words, if the college money were given to the child instead of paid on her behalf, it might be viewed differently - like the house.

That is how the IRS views it, and also college financial aid programs. As far as I’m concerned it’s a rose by any other name, the two are roughly equivalent, and my children are pretty clear on that.

 

[Jerry1]

Yes, the daughters have no issues with what transpired. I was just wondering about the gift tax. I think the fact that DD2 was a dependent may be a good reason they’re looked at differently. It only came up because it came up with our attorney as part of preparing the quit claim deed to transfer our interest in the house to DD1.

 

[Sojourner]

Why would giving DD1 a house be considered any differently than giving DD2 an education? Both were provided about $100K and both were adults at the time. Again, nothing is going to change, but it just made me wonder why they are thought of differently. Any ideas?

From my perspective, they are different in the following way. You gifted DD1 some fish, but your gift to DD2 was teaching her how to fish. From my perspective, the gift to DD2 was far more valuable.

I don't think there's an easy or one-size-fits-all approach to gifting money to kids, grandkids, etc. Clearly, some recipients will use their gifted funds more wisely and prudently than others. It's up to you whether that makes any difference in how you distribute the gifts.

 

[SecondCor521]

I personally don't wonder why the tax code is the way it is. My chances of influencing what it is are exactly zero.

So all I do is play the game that my Mom taught me: learn the tax code as well as you can, combine it with what you want to do in life, and try to navigate the waters as efficiently as possible.

I will note two other things:

1. Paying for college or medical expenses directly is exempt from the $15K per person annual gift exclusion, so can be helpful for estate planning reasons.

2. The tax law is a result of the government understanding that people respond to incentives and a collective agreement that thing X is good or thing Y is bad. So it gives adjustments, deductions, and credits for X and taxes, fees, penalties, and interest for Y. It will ever be thus, I think.

OP, glad your two kids are OK with the outcome, that's probably the more important thing. I'm working on evening some smaller dollar amount items of things out with my kids right now.

 

[Jerry1]

I will note two other things:

1. Paying for college or medical expenses directly is exempt from the $15K per person annual gift exclusion, so can be helpful for estate planning reasons.

I did not know that. I think that’s my answer. While similar in nature, one has been specifically exempted. I never thought to look into it with that frame of reference. Thanks.

 

[Golden sunsets]

Can't you file a form with the IRS which would exempt you from paying any sort of gift tax and limiting DD1 from inheriting tax free the value of the home if it is in excess of the max inheritance before estate taxes kick in, which are currently in excess of 11 million? Or are taxes not your concern?

 

[Lsbcal]

As I understood it the for most of us there is no "gift tax".

The only thing that happens is you have to subtract the current gift above $15k from the lifetime amount which is $11.4 million. I am guessing that almost everyone reading this is well below this estate amount.

 

[donheff]

I have my name on DD's house title because she needed my credit (and down payment) to support her application. I also subsidize a portion of her mortgage. I plan to remove my name from the title at some point. I assumed that I could view the money I have contributed to be annual excluded gifts to her. I was informed (by who I don't remember) that taking my name off the title is a simple thing and won't by itself result in a tax event if I don't consider any of the equity in the house to be mine.

Any gotchas here?

 

[cathy63]

I have my name on DD's house title because she needed my credit (and down payment) to support her application. I also subsidize a portion of her mortgage. I plan to remove my name from the title at some point. I assumed that I could view the money I have contributed to be annual excluded gifts to her. I was informed (by who I don't remember) that taking my name off the title is a simple thing and won't by itself result in a tax event if I don't consider any of the equity in the house to be mine.

Any gotchas here?

What does the deed to the home say about your ownership percentage? When you transfer it to DD, nobody is going to report that to the IRS, but if anybody ever does look and the deed says you're equal co-owners, it's going to be hard to argue that you didn't have 50% equity. The gift tax will be $0 if the home is worth less than $11M, and it's easy to file form 709. Keep a copy of it, and any other 709s you file in the future, with your estate plan/will.

Depending on where the home is located, there may be a reassessment and property tax increase.

Also, the mortgage loan may have some clause about what happens when ownership changes, so it's good to read those docs again before transferring the property.

 

[RunningBum]

As I understood it the for most of us there is no "gift tax".

The only thing that happens is you have to subtract the current gift above $15k from the lifetime amount which is $11.4 million. I am guessing that almost everyone reading this is well below this estate amount.

You can subtract $30K from the lifetime exemption and form 709 since it came from the OP and wife. If the daughter is married, it could be $60K though if it's in her name only, maybe not.

 

[donheff]

What does the deed to the home say about your ownership percentage? When you transfer it to DD, nobody is going to report that to the IRS, but if anybody ever does look and the deed says you're equal co-owners, it's going to be hard to argue that you didn't have 50% equity. The gift tax will be $0 if the home is worth less than $11M, and it's easy to file form 709. Keep a copy of it, and any other 709s you file in the future, with your estate plan/will.

Depending on where the home is located, there may be a reassessment and property tax increase.

Also, the mortgage loan may have some clause about what happens when ownership changes, so it's good to read those docs again before transferring the property.

I don't actually know. I was assuming she wouldn't get the deed until the loan is paid off. My SiL is a real estate attorney in MD (where DD lives) and said she would handle the transfer and that it was no big deal. I will confirm tax implications when we do that.

 

[Koolau]

As I understood it the for most of us there is no "gift tax".

The only thing that happens is you have to subtract the current gift above $15k from the lifetime amount which is $11.4 million. I am guessing that almost everyone reading this is well below this estate amount.

Keep in mind that $11.4 mil figure is subject to change (more or less on the whim of those in power - which has changed.) so YMMV.

 

[Jerry1]

Can't you file a form with the IRS which would exempt you from paying any sort of gift tax and limiting DD1 from inheriting tax free the value of the home if it is in excess of the max inheritance before estate taxes kick in, which are currently in excess of 11 million? Or are taxes not your concern?

As I understood it the for most of us there is no "gift tax".

The only thing that happens is you have to subtract the current gift above $15k from the lifetime amount which is $11.4 million. I am guessing that almost everyone reading this is well below this estate amount.

Taxes were not my concern. I'm well (WELL) under the $11M. I was just out of curiosity. It came as we did the transfer, but it never came up as part of paying for DD2's education. The two were essentially the same in my mind, but per a previous post, education expenses are exempt.

 

[Car-Guy]

Keep in mind that $11.4 mil figure is subject to change (more or less on the whim of those in power - which has changed.) so YMMV.

And it you don't file form 709, who's going to know in a few years even if they drop it to 1 or 2 or X million? Although "stuff" happens...

Personally my DW and I have gone over the annual 30k exemption so we are filing 709's... Not too worried about us ever reaching the current lifetime limits of 11.4m.. If they change the rules to 4 or 5m, I might look at things differently.

 

[Lsbcal]

Keep in mind that $11.4 mil figure is subject to change (more or less on the whim of those in power - which has changed.) so YMMV.

Yes taxes are a never ending game. My guess is that if the $11.4M is reduced it will still be a pretty sizable amount.

When I pass at age 120 that $11.4M will be reduced by a lot of inflation.