Q. I am buying a property that my daughter is going to reside with my two grandchildren. I am paying cash for the house. The house will be in my name, my wife’s name and my daughter’s name. Does this plan make sense? I am purchasing the house with a contract made for me and my wife. We are adding our daughter to the deed. We would gift her half of the house, then gift her cash that she will use to buy the other half of the house.
A. For this kind of planning, you should speak to an attorney who can review the entire transaction and see how it fits in with your overall estate plan.
There are several moving parts you need to consider.
First, although some states impose a gift tax, there is no gift tax in New Jersey.
The federal estate and gift tax exemption amount for 2021 is $11.7 million per person, or $23.4 million per married couple, less any lifetime gifts in excess of the annual exclusion, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.
“The annual exclusion is the amount of a gift each person is permitted to make each year free of tax, not to exceed $15,000 to any number of beneficiaries,” she said. “The annual exclusion is $30,000 when spouses join in the gift.”
Gifts over the annual exclusion but less than the lifetime exclusion of $11.7 million require the filing of a federal gift tax return, but no gift tax will be owed, Romania said, noting that these gifts will be included in your federal taxable estate upon your death for the purposes of determining federal estate tax liability.
“So, if you purchase a home in New Jersey for $200,000 and give the entire home to your daughter, you would need to file a federal gift tax return but no gift tax would be owed,” she said. “Alternatively, you could put your daughter’s name on the deed and take back a mortgage and forgive a portion of the mortgage each year equal to the annual exclusion, in which case no gift tax return would be required.”
Romania said while there are many ways to structure this transaction, improper titling of the house or transfers of funds could have negative estate planning or tax consequences. That’s why we recommend you consult with an attorney before taking any action.
Email your questions to [email protected].
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.