Property gifted from living trust

Your parents can transfer their property in living trust to you by signing a quit claim deed. But as far as I know, there may be some tax payments involved.

Hi Tylor,

When any property is transferred from a living trust through a deed, two things should be considered. Firstly, the property should be marketable if you decide to sell it later on and secondly, if there are any tax implications of this transfer.

• Marketability:
  By this, I mean that you should prove to the buyer that you have good title to the property. A buyer will want the transfer of the property to be authorized not only by your parents but by all other beneficiaries (if any). So, it is better that all the beneficiaries sign off when the property is transferred to you. This will make it clear to the buyer that the other beneficiaries no longer have any interest or claim on the property he wishes to buy.
  
  The buyer should be assured that the property has good title and for that, you can show him the trust instrument recorded along with the deed to the property. The buyer may want a signed and notarized consent from all beneficiaries of the trust recorded on the land records.
  
  
• Tax Implications:
  If we consider the tax implications, there is no capital gain or ordinary income resulting from the transfer as this is a gift. You are likely to inherit your parent's tax basis on the property. This is similar to the situation when property is transferred directly from your parents. However, your parents are required to pay gift taxes for the transfer of the property. But they will not qualify for the annual gift tax exemption ($12,000 for the year 2006) as gifts from a trust do not qualify for annual gift tax exclusion.

Thanks,

Caron.

Hi Caron, I think you're right; one has to be aware of the gift tax laws in his state. There are certain states which allow a gift tax exemption equal to the federal annual gift tax exclusion. However, if the federal annual gift tax exemption is not available, then the person transferring property as gift has to pay the gift taxes in the year of the transfer itself.

I have joint title on property with my nephew what happenes to property upon my death

Hi Nelia,

Your nephew can file an affidavit of heirship and get the property transferred in his name after your death. If you leave back a will, then he will have to probate the will and get the property transferred in his name.