If I add a childs name to my house title as a joint tenant how do I use the lifetime gift tax exemption?

[Cam Smith]

Hi everyone, I was thinking about adding my son as a joint tenant to a rental property I own, If I do this it would probably be the equivalent of a $30,000 gift. I heard that there is a life time gift exemption of $5,250,000 in 2013. Obviously $30,000 is nowhere near that amount but does anyone know what the process would be for using this gift exemption? After I change the title on the property to joint tenants with my son how do I go about claiming the life time gift exemption to avoid taxes? Does anyone have any experience doing this? If we decided to sell the property in a couple years he would get half of the money is that correct? Here is some brief info I found about it online. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What's-New---Estate-and-Gift-Tax

• The annual exclusion for gifts is $11,000 (2004-2005), $12,000 (2006-2008), $13,000 ( 2009-2012) and $14,000 (2013).
• The applicable exclusion amount for gifts is $1,000,000 (2010), $5,000,000 (2011), $5,120,000 (2012) and $5,250,000 (2013).

[Dave Toelkes]

@Cam Smith,

The federal estate tax exemption is $5.25 million this year. It only applies this year to a deceased person's estate. If you die this year, then the first $5.25 million of your estate is tax free to your heirs. If you die ten years from now, the federal estate tax exemption will be whatever amount is in effect in the year of your death -- and may be higher or lower than $5.25 million.

If the value of a gift to any individual exceeds $14000 (this year), the excess is taxable and reported to the IRS on the giver's personal tax return. This excess is not actually taxed but reduces the giver's federal estate tax exemption. So at time of death, the giver's lifetime taxable gifts could total $5.25 million and no gift tax would be due, but then the giver's federal estate tax exemption would be reduced to zero.

Even though you would not have to actually pay a gift tax in your situation, I strongly urge you to reconsider your plan. If you add your son to the title to your rental property, then the property is exposed to liability in the event your son is sued or declares Chap 7 bankruptcy. You could lose the rental property through no fault of your own..

Additionally, if you add your son to the title now, his basis in the property is half your basis. Le'ts say that the rental property is fully depreciated and the land value is $5000. Your tax cost (basis) in this property is $5000, and adding your son to the title now would transfer half your basis to him. If he inherits your interest in the property when you pass away, and then sells the property, he will lose the step up in basis on his half of the property and will have to pay capital gains taxes if his share of the property is sold for more than $2500.

A better plan would be to put the property into a living trust and make your son an alternate beneficiary. Then, upon your death, he can inherit at the full stepped up basis and the rental property avoids probate. Meanwhile, the property is shielded from liability exposure due to your son's actions.

Best to consult your attorney for specific details as they may apply to your own circumstances.