Best way for my mom to transfer her house to me

[J Campbell]

 Not sure what fortum to post this is so just dropping it here....just had the wonderful (sarcasm) discussion of how my elderly mom can  best pass her house to her children when she passes. :(

so im looking for info to avoid costly taxes or other pit falls.

this is going to be unpleasant enough so would be great to minimize any technical bs associated with it.

Im not currently on the deed but she wants to put me and my brother both on the deed and as ask ing me for advice which I dont have so here I am asking bp.

Any input appreciated.

Thanks

[Linda Weygant]

Originally posted by @Jean Bolger:

Unless you are  a very high net worth family this is probably not something you need to be worried about. You will probably pay no tax on any of your mom's estate, whether it's real estate or anything else. I don't know what that $$ cutoff is now, but it's pretty high. In other words: most families that are subject to inheritance taxes already have financial advisors on hand to tell them how to avoid inheritance taxes. 

I would talk with an accountant ( hey @Linda Weygant, you're a CPA right?) before adding anyone to the deed. That could backfire on you.

 Indeed I am.  Regardless of whether or not there is estate tax, the issue is really what happens with the assets at transfer.  In essence, the estate tax is calculated on the total value of the estate before it gets passed to the heirs.  And while Florida may not have an estate tax, that means that the State won't charge any tax.  The IRS will enforce the estate laws on a federal level no matter where the deceased was domiciled.

My original answer took into account the situation regardless of whether estate tax was paid or not.

Let's say your mom bought this house in 1950 for $10,000 and it is now worth $400,000.  If that's her only asset, her estate has a gain of $390,000.  This is below the estate tax threshold so the the estate pays no tax.  The house then transfers to the heirs at a value of $400,000.  If they sell it right away, they pay no capital gains taxes.  However, if they then sell it 3 years later when the house is worth $475,000, they pay capital gains taxes on the $75,000 of gain.

Now let's say your mom has this house and also several million dollars worth of furs, jewels, classic cars, stocks, bonds and gold stashed under the mattress.  Now her estate will pay tax on the value of all that stuff as well as the house.  But the treatment to the heirs is still no different.  They still receive the house at a value of $400,000 and taxes continue as in the first example.

Now let's say that mom transfers title to her children before she dies.  She has just given her kids $400,000.  The annual limit per child is $14,000 (this year.  It goes up every year).  So if she just has two kids, she's transferred $28,000 tax free and she will need to pay gift tax on $372,000.

There is a way to transfer just the annual limit to each kid every year so that she transfers $28,000 in Year 1, another $28,000 in Year 2 and so on until the total value is transferred, but honestly this is really messy and (I think) might involve changing the title every year because you'd have to actually show it like this:

Johnny Smith 3.5% ownership portion, Janie Smith, 3.5% ownership portion, Mama Smith 93% portion

and then in Year 2, change the title to:

Johnny Smith, 7% ownership portion... etc.

Gets very clunky very quickly, but maybe somebody who has actually done it can chime in as to the actual mechanics.

I've done the gift tax returns for this situation once about 15 years ago and I remember it being incredibly complex.  Especially because that meant that Mom couldn't even give her kids a birthday present of anything significant, so it became this weird balancing act of documentation and, in my opinion, was a lot more trouble than it was worth.