Can My Gift To Me Real Property parents directly from their Living Trust?

Question: I'm not sure if this is the place, or if this question can be asked / answered here.

My parents have property / real estate currently held in a trust in which both the grantor and trustee. I am the Successor Trustee.

And 'possible to transfer' ownership 'of this property from the trust for me before they died?

I am aware there are several ways to do it. However, what we would do is simply transfer ownership (not sell), I became the legal owner of this property.

Confidence would simply need to be changed so that now the trustee, then the owner?

Moreover, what could be the tax considerations is when the property is transferred from one person to another without the property was purchased / sold? Regards, W.F.

Answer: Dear W.F. - Yes, the property can be transferred by the trust of your parents directly to you via a quit-claim act. However, there are two things that need to be concerned: (1) the property will be "marketable" if you decide to sell at a later date, and (2) what are the tax consequences be the result of this transfer?

We look at the question "marketability" first. For "marketability" I mean, you will be able to demonstrate a potential buyer that you have good title to the property? An act that is a living trust may not be acceptable unless the prospective buyer can also look at the trust to see that the transfer of property is authorized. Your mother and father could amend the trust to authorize the transfer, but, remember, as the directors act in a fiduciary capacity. This means that they are not acting on their own, who are acting on behalf of all beneficiaries of trust. If there are other beneficiaries of the trust, would have a legitimate complaint if the property was given to you as a gift. To be sure, you would probably want all the other beneficiaries to sign-off on the transfer. If I were to purchase this property from you ten years from now, I know that the other beneficiaries are not entitled to the property.

If the deed is a quit-claim deed, or a notice of guarantee, a potential buyer wants to know who is buying good title to the property. To have this certainty, that he would like to see the trust recorded with the deed, and that he wanted a signed and notarized consent from all other beneficiaries of the trust recorded on land records as well. This is not something that most owners want to trust.

You see, when you're taking the title to real property, you want to be sure they can sell later for its full value. Being able to show a good title to the property is vital to its marketability. When you take property from a trust, it becomes much harder to prove good title.

There are a couple of other issues that you should be aware of when you take property from a trust. If your parents have an insurance policy on the property, you should check with the title insurance company to see if the policy is canceled due to the transfer. And 'likely would be canceled because there would be a "successor in interest" under the policy. In this case, you will need to purchase another title insurance policy and pay the additional premium, or just go and without running the risk of having a defect in the title.

If your parents have an existing mortgage on property that is transferred to you, then you need to check with the lender before the transfer to see if there is already a two-on-sale clause. If there is, then the lender may try to call the loan when the transfer is made. The lender may be prevented from calling the loan, however, under the Garn-St. Germain Depository Institutions Act of 1982. Under § 341 (d) (6) of that Act, the exemption applies in the case of a mortgage that is secured by mortgages on residential property where the spouse or children of the borrower become an owner of the property. You should check whether this exception applies in your case.

Now, look at the tax consequences of transferring the property directly from the trust. Since this is a gift, there will be the realization of capital gains or ordinary income on the transfer. You will, however, inherit from your parents for tax purposes in the property. This is the same result would be obtained if the property was transferred directly from your parents.

From the perspective of a gift tax, however, there is a distinct disadvantage for the transfer of property from the trust, ie, the annual gift tax exclusion (currently $ 12,000) do not apply as gifts to a trust does not qualify for 'annual gift tax exclusion. If your parents have an estate large enough to be concerned with estate taxes, then you probably do not want to miss this annual exclusion because it would require that they consume much of their unified credit against the inheritance tax and gift tax.

You should be aware of the state gift tax laws as well. Some states, for example, only provide for a gift tax exclusion amount to annual federal gift tax exclusion. If the federal annual gift tax exclusion is not available, then an actual gift tax will be paid during the transfer. This alone often kill the deal once it becomes known to the transferor.

As you may have gathered from the above, there are some real disadvantages to give real property by a living trust. However, these disadvantages can be avoided entirely by simply transferring the property back to the grantor (the father and mother in this case), then make them transfer the property directly to you.

In doing so, you avoid problems with a two-on-sale clause if there is a mortgage on the property. You avoid a termination of any policy of title insurance on the property. They provide a potential buyer to have good title to the property without having to register the trust without having to seek the blessings of the beneficiaries of other trusts. And finally, your parents can claim the gift tax annual exclusion, which can save considerable estate taxes somewhere down the road.

Ultimately, it may cost a few dollars more to transfer the property back to your parents and then to you, but it will be worth it ....