Liz Weston: Gifting Large Goods, Even After Death, May Have Conditions

Dear Liz: A reader recently asked about the possibility of giving a rental house to the sister who has lived there for 10 years. You mentioned that the reader should file a donation tax return since there is a maximum of $ 15,000 for a donation exemption. Couldn’t the owner just add the sister to the title so that when they pass the sister becomes the sole owner of the house without having to deal with taxes, probate etc. Likewise, if the sister dies first, the current owner will keep the property to give, sell, give as he sees fit.

Responnse: Adding the sister to the deed would be considered a donation, so the reader would still have to file an income tax return.

Owning the house together would bypass probate and give the surviving sister a tax break, and that half of the house would get what is known as an increase in the tax base upon the death of the first sister. Another option, if the reader wishes to retain ownership, would be a death transfer deed, available in many states. The reader was clear that she wanted to give an outright gift, but she could consult with a lawyer specializing in real estate or estate planning about other options.

Dear Liz: I would like to give money to my grandchildren, but I don’t want to pay income tax on my IRA or 401 (k) withdrawals. Will they get it tax free when I die?

Responnse: Unfortunately no.

Withdrawals from retirement accounts are generally taxable whether the person making the withdrawals is the original contributor or an heir. In addition, non-spouses who are beneficiaries of retirement accounts generally have to withdraw the money within 10 years.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.


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