So this is just a what if situation that my family asked me about at a reunion last weekend that got me thinking.  We have two kids,  and two years ago my husband and older son went together on a mortgage (that son could not have afforded himself) and the title is in both their names, as is the mortgage.  Husband is NOT a cosigner, but joint on the mortgage.  Son lives there with a roommate. We have access to the mortgage company site so we know he pays on time and doesn't harm our credit rating.  There is complete trust there, that's not the question.  We are about to do the same for the other son.  In both cases we put down just 5% as a gift to them, $9000 in both cases, so under the gift tax limit.  

I have two siblings who also had sons in 1992 and one of them said "so, if you won the lottery and paid off the mortgage, they wouldn't even have to pay the gift tax, would they?"  I had never considered this, and it's not going to happen, as we don't play the lottery.  But the concept of paying down their mortgages without them incurring the gift tax was an interesting one.  Since we aren't going to actually DO it, I don't want to pay my CPA or my attorney to answer this question, but I was wondering...did my brother stumble across a tax loophole?  I can't seem to find the answer on the Internet.

TIA