It's getting to crunch time, buying a house for a child.

[Time2]

I have ask this before, but this will probably happen within a month. I'm buying a house for our son. This will be a gift, but I wonder, should I just gift him the money and fill out the IRS form that says it is part of my estate and subtract it from our lifetime gift exemption and be done. Or buy the house, give him a mortgage and then we gift him $34,000 a year to pay down the mortgage. I don't see an advantage over either, but asking.
Also do you see a better way to transfer some of our wealth and buy him a home?
Mikek

 

[Montecfo]

Do you expect to have a taxable estate?

 

[Time2]

Do you expect to have a taxable estate?

Nope!

 

[H2ODude]

I just decided last year to forgive DS the mortgage we had on his house. Just going to forgive the interest and principal each year up to what DW and I can give him until it's wiped out rather than do any paperwork.

 

[Stormy Kromer]

A couple things come to mind.

Is your son married ?

Do you have other children ?

 

[GravitySucks]

I gave DD the money and filled out the tax form. I have no idea why some say this is a difficult thing to do. Could be an issue if I win the Power Ball and leave a taxable estate later though.

Pleasantly surprised that she has given me about what the mortgage would have been every month since then even though I’ve insisted it was a gift.

 

[krayon]

Also do you see a better way to transfer some of our wealth and buy him a home?

I am not a lawyer, but here are some things that I've read that you may want to research:

1. Assets at death get a step-up in basis. Instead of buying him a house, if you kept it on your name and let him inherit it, he may have a higher cost-basis and less capital gains should he sell it.

2. Gifting assets outright to a child can expose these assets to creditors/predators, divorcing spouses, Medi-caid, etc. Depending on the amount/state, it might be better to make large gifts in a trust.

 

[OldShooter]

I have ask this before, but this will probably happen within a month. I'm buying a house for our son. This will be a gift, but I wonder, should I just gift him the money and fill out the IRS form that says it is part of my estate and subtract it from our lifetime gift exemption and be done. Or buy the house, give him a mortgage and then we gift him $34,000 a year to pay down the mortgage. I don't see an advantage over either, but asking.
Also do you see a better way to transfer some of our wealth and buy him a home?

These are questions best asked of a trusted lawyer or CPA, not SGOTI. You are talking about quite a bit of money here. For personal and tax reasons I strongly suggest spending a small fraction of that money to understand the options and select the one that is best suited to your situation..

Re estate tax, remember that the limit goes back down in a couple of years. FWIW we are doing our planning on the assumption that our estate may be taxed at the future rate, not today's rate.

 

[Time2]

A couple things come to mind.

Is your son married ?

He is single, no one on the horizon.

Do you have other children ?

we also have a daughter. We paid for her dental education, she's now a practicing dentist. This is playing catch up for our son.


He's a solid kid, a little bit of a late bloomer, but did graduate with a chemistry degree after a good freshman year a bit of floundering his sophomore year, took a year off, worked and then seemed to get his s#it together. He went back to school and did well. He's been working at this latest job for about two years in what looks like a good company, he's got several raises, some great year end bonuses. He is now going to a state college to get a mechanical engineering degree, while still working full time. This will make him even more valuable to his company and anywhere else he may go. He has been living back at home since the beginning of Covid. Long story short, He came home to spend a few weeks to say good by, he was marrying a Canadian and moving there. When Covid hit they were on opposite sides of the boarder they couldn't see each other, time passed and they called off the marriage. (dad secretly happy) Anyway he is still at home, saving over 50% of his income, he has $200k, between his Roth 401k and his Vanguard account at 29yrs old. I consider that pretty a good nest egg. He has no debt. I got carried away, but hope that gives some prospective.

 

[Time2]

I am not a lawyer, but here are some things that I've read that you may want to research:

1. Assets at death get a step-up in basis. Instead of buying him a house, if you kept it on your name and let him inherit it, he may have a higher cost-basis and less capital gains should he sell it.

2. Gifting assets outright to a child can expose these assets to creditors/predators, divorcing spouses, Medi-caid, etc. Depending on the amount/state, it might be better to make large gifts in a trust.

I appreciate that input, pros and cons on both sides about who or what owns the assets. I have already made some movement towards getting in touch with a lawyer to talk about the options.

 

[krayon]

I appreciate that input, pros and cons on both sides about who or what owns the assets. I have already made some movement towards getting in touch with a lawyer to talk about the options.

Passing wealth to heirs is a complicated topic indeed. Speaking to a competent attorney is definitely the way to go! If you do start thinking of trusts, I suggest reading this excellent two-part paper by Oshins and Siegel. It will make you a more informed consumer on the many bells-and-whistles in a trust, and you will probably have a much more productive meeting.

The Anatomy of the Perfect Modern Trust:

https://www.naepcjournal.org/journal/issue23c.pdf
[URL="[/URL]https://www.naepcjournal.org/journal/issue23d.pdf"]https://www.naepcjournal.org/journal/issue23d.pdf
[/URL]

 

[MarieIG]

. . .

He is now going to a state college to get a mechanical engineering degree, while still working full time. This will make him even more valuable to his company and anywhere else he may go. . . .

Does he want a house now in this location, or is he contemplating moving upon graduation? If the latter, perhaps give him the gift exemption towards his downpayment each year until he graduates? Otherwise, he seems mature and responsible, and I don't see an issue with the gift.

It does sound though with the mortgage scenario that he would be "buying" the house, you would act at the mortgagee and hold the mortgage, and that you would gift him the yearly max to pay it off. Just make sure the loan is forgiven upon the second to die. You would want an experienced RE attorney to set up the paperwork and advise upon the interest rate (to avoid gifting consequences).

 

[Time2]

Does he want a house now in this location, or is he contemplating moving upon graduation?

I may have mislead with my "and anywhere else he may go" comment", he expects to stay working where he is at, the company is paying for the college at the end of each semester!

It does sound though with the mortgage scenario that he would be "buying" the house, you would act at the mortgagee and hold the mortgage, and that you would gift him the yearly max to pay it off. Just make sure the loan is forgiven upon the second to die. You would want an experienced RE attorney to set up the paperwork and advise upon the interest rate (to avoid gifting consequences).

 

[Koolau]

I am not a lawyer, but here are some things that I've read that you may want to research:

1. Assets at death get a step-up in basis. Instead of buying him a house, if you kept it on your name and let him inherit it, he may have a higher cost-basis and less capital gains should he sell it.

2. Gifting assets outright to a child can expose these assets to creditors/predators, divorcing spouses, Medi-caid, etc. Depending on the amount/state, it might be better to make large gifts in a trust.

If you buy and let him live in it, you'll likely have to charge some "reasonable" rent. Of course, you could gift him the rent.


IN any case, I'd seek professional state-appropriate help on this question. It's a lot of money and you don't want to mess it up. YMMV