Lifetime Gifts Compared to Post Death Transfers of California Real Property Tip Sheet by Deed and Record

California trust and probate attorney for lifetime gifts and post death transfer of California real property

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Lifetime gifts compared to post death transfers of California real property

Post death transfers of California real property are preferable to lifetime transfers.

In anticipation of death an owner of California real property can either gift while living the property or plan by Will or Trust for the transfer to occur after death. This Tip Sheet by Deed and Record explains the tax, control and Medi-Cal eligibility consequences of the two approaches.

In California property taxes are assessed at about one percent of the purchase price of the real property plus nominal annual increases. This is the property tax base. A gift while living will increase the property tax base to fair market value. Post death transfers delay the property tax base increase to the date of death.

There are exceptions to the property tax base increase such as spousal transfers and transfers between parents and children so the property tax increase for these transfers is not an issue. For all others, most likely, the property tax bill will increase. For all lifetime transfers the biggest problem is capital gains that results from application of the gift and estate tax.

A gift of real property is subject to the gift and estate tax. This is not an issue for most people as the exemption amount is over five million dollars and so no gift tax is assessed. But in the gift tax assessment process the purchase price of the original owner is transferred to the new owner. On the sale of the gifted property, a capital gains tax is assessed on the difference between the original purchase price and sales price.

Post death transfers are also subject to the gift and estate tax, but again this is not an issue for most people because the exemption is over five million dollars. The difference in post death transfers compared to lifetime transfers in application of the gift and estate tax is the basis for capital gains tax becomes the fair market value as of date of death. Post death transfers of real property can avoid substantial capital gains tax compared to lifetime transfers.

An additional problem for a lifetime gift is Medi-Cal eligibility. The timing of the transfer may disqualify the owner for Medi-Cal because of the look back period for assets transfers. Regardless of taxes and Medi-Cal the biggest problem with lifetime transfers is the loss of control.

When a person gives away real property or a portion of the real property, he or she no longer has the ability to live in the house, sell the house or borrow money on the house without the new owner’s consent. Post death transfers do not relinquish control.

In planning for death, an owner of real property can either gift the property while living or plan for a post death transfer. Gift transfers relinquish control, may increase in property taxes, will in a future sale incur higher capital gains tax and may hinder Medi-Cal eligibility. Post death transfers such as Wills and trusts do not have these problems.

This Tip Sheet is provided by Mark W. Bidwell, a licensed attorney in California. Office is located at 4952 Warner Avenue, Suite 235, Huntington Beach, California 92649. Phone is 714-846-2888.

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