How To Give Property to Children Before Death

You don’t have to wait until you pass away to give your wealth to your family. In fact, in the case of large estates, it is frequently in your best interests to be generous with your children before you die. Otherwise, a large portion of your money will go to the IRS instead of your children.

Gift Tax Exemption and Outright Gifts

Under current IRS law, you can lawfully give away $14,000 annually without any tax consequences to your children. If your spouse is still alive, you can give a combined gift of $28,000. As you can imagine, this provides for a loophole large enough for some very creative ways to give property to your children.

The funds can be any cash assets, value in real property, or stocks and bonds. Any $28,000 from your portfolio can be transferred.

Sale and Debt Forgiveness

One of the more creative methods to dispose of real property is by “selling” the property to your children using a legal note. The note is drafted as though you are the mortgagor and the deed is changed into your children’s names. Then, every year on January 1 (or any other appropriate calender year date), the debt is forgiven by $28,000 and the note is reduced. This continues until the property is completely transferred into your children’s ownership.

Additional Giving Exceptions

If you still need to remove more funds from your estate, the IRS provides further gift tax exceptions for educational and medical expenses. According to IRS law, any direct payment for medical or educational expenses can be unlimited gifting amounts. If your daughter is attending an expensive college and you would like to pay for it, you can cover all expenses that go directly to the college – gift tax free. This rule also applies to graduate education such as medical school or law school. Also, if a child is ill and has a large amount of medical expenses, you can step in and pay the hospital and doctor’s bills for your child. Remember that the money must be paid directly to the medical institution in order to be gift tax free.

Consult an Attorney

Annual gift tax exclusion is a complex area of the IRS code. In order to avoid creating excessive tax bills for your children, giving should be done under the guidance of an attorney to ensure that the benefits for you and your children are maximized.

Case Studies: Strategies for Giving Property to Children Before Death

Case Study 1: Maximizing the Gift Tax Exemption With Outright Gifts

John and Sarah utilized the gift tax exemption to transfer property to their children before their passing. Discover how they leveraged the current IRS law, which allows individuals to gift up to $14,000 annually to each child without incurring tax consequences. Uncover the creative ways John and Sarah utilized this exemption, including transferring cash assets, real property, and stocks and bonds.

Case Study 2: Creative Transfer Through Sale and Debt Forgiveness

Michael and Emily’s case as they employed a unique strategy to transfer real property to their children. By “selling” the property to their children using a legal note, they gradually transferred ownership. Learn how they forgave $28,000 of debt each year, reducing the note balance until the property was completely transferred to their children’s ownership.

Case Study 3: Exploring Additional Giving Exceptions

David and Emma utilized additional gifting exceptions provided by the IRS for educational and medical expenses. Learn how they made direct payments for their children’s college tuition and medical bills, leveraging unlimited gifting amounts. Understand the importance of paying these expenses directly to the educational institution or medical provider to ensure gift tax-free transactions.