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Transfer a property to a friend not a family member. What's the better way to do to avoid gift tax or Estate tax?
Anonymous2 views3 answers
My good friend and I are both aliens . I help her to buy a rental house in CA , the property is under my name now . But , in order to make things clear , I want to transfer the property to her name when she take a trip to USA next year . The agent told me we can do Quick Claim Deed . As I know , doing in this way may cause gift tax or estate tax ? I have to pay the tax while transferring the property . Are there better ways to cost less for transferring ? ( the property is 1990S when I bought it . right now may be about 200K ) Or it is better that I transfer to his sister ( who is US citizen ) to avoid the gift tax ? or charge for less cost ? Or I should put his sister as a Tenant in common in the property deed and do partially transfer as a gift annually ?
Matthew Erik JohnsonBankruptcy AttorneySeattle, WA ·
Yes. The easiest way is to set up an LLC, and to slowly transfer Units of the LLC that are beneath the yearly gift tax exclusion of $13,000 per year.
You should use a qualified CPA to do this, as the controlling Units will be worth subtantially more than the minority units. Thus valuation is important. Well worth the savings, however.
You can also use a trust, using the sister as a trustee and your friend as a beneficiary. This would also result in reducing your gift exclusion - but the federal exclusiion is very high, so not a problem. i am unsure as to whether CA has a low gift tax exclusion. WA's remains at around $1mil,
You can also use tenancy in common if you wish. This would transfer only the portion of the property you wish to transfer. Again, valuation would be required in your next tax return.
You have options. Take some time and really work with the options until you have a working understanding as to how everything works.
If you use an LLC option, be aware the gift tax limitation was raised to $14,000 per year. I prefer a tenancy in common or joint tenancy option. Joint tenancy would allow the property to pass to the survivor upon death without further ordeal. Each tenant could also put their share of the property in a trust. Please see an attorney to accomplish this.
You made the right choice in seeking advise about gifting. Although you are entitled the the same small annual exclusion as a U.S. Person a non-resident alien has no lifetime gift exclusion. Tax on your gift would be 40% of its value unless the gift is structured correctly. Non-Resident Aliens are not taxed on gifts made outside of the U.S. There are several different approaches that we can use to 'export' the asset for gift purposes by wrapping it in a non-U. S. entity which is then gifted in the appropriate fashion. Here in San Diego, this happens often enough that the realtor should have given you better advice.
Best wishes,
Joel S. Weissler
Attorney at law
(619) 281-1888
