| We know that you can give up to $12,000 per | | | | comply, then the IRS can always challenge your |
| person per year and never pay a federal gift tax | | | | value. If the value is found to be more than the |
| - thanks to the annual gift tax exclusion. That's | | | | annual exclusion amount, then you'd have to file a |
| fine if you're writing out a check or just giving | | | | gift tax return each year and possibly pay a gift |
| cash. But, how can you give someone a house or | | | | tax. Appraisals cost money and have to be done |
| a business or anything else that is not money and | | | | every time a gift is made.Is there a better way |
| still have it come under the annual gift-tax | | | | to transfer real estate under the annual gift tax |
| exclusion?Let's say you're parents have a condo | | | | exclusion? Sure there is! No one wants to transfer |
| in Florida that they bought several years ago for | | | | real estate in the manner we just discussed. It's |
| $100,000, and it's now worth $400,000. Now, | | | | just too cumbersome, time consuming, and |
| they want to give it to you and your two sisters | | | | expensive. The preferred way to transfer real |
| because they're concerned about the new | | | | estate under the annual gift tax exclusion is to |
| Medicaid laws and their estate taxes.Qualifying the | | | | use a separate legal entity, such as a corporation, |
| entire $400,000 condo under the annual gift tax | | | | or a limited liability company, or a family limited |
| exclusion is not easy. First, it's hard to gift real | | | | partnership to facilitate the transfer. My |
| estate in $12,000 increments. Sure, you can do it | | | | preference is a limited liability company (LLC) |
| by simply dividing the value of the condo | | | | because it is easy and inexpensive to set up, and |
| ($400,000) by the annual exclusion amount | | | | does not create the need for additional on-going |
| ($12,000 in 2006). In our example, $12,000 is equal | | | | expenses.Here's how it works: First, your parents |
| to a 1/34th interest in the condo, which means | | | | would create a limited liability company. Let's call it |
| that each of your parents could give you and | | | | the Smith Family Condo, LLC. The LLC would be |
| each of your sisters a 1/34th interest in the | | | | created with 34 membership units ($400,000 / |
| condo each year. At that rate, it would take | | | | $12,000). Your parents would then transfer their |
| roughly 6 years to complete the transfer. If | | | | condo to the LLC in exchange for all 34 |
| spouses were included in the annual gifts, then the | | | | membership units (each parent would receive 17 |
| time needed to transfer the entire condo would | | | | membership units). Only one deed is necessary |
| be reduced to about three years. [Careful planning | | | | when your parents transfer the condo to the |
| could reduce that time to 366 days by making | | | | LLC, and only one recording is required. Likewise, |
| the first transfers on December 31st, the second | | | | only one appraisal is necessary to establish the |
| transfers on the following January 1st, and the | | | | value of the condo at the time of the |
| final transfers on January 1st of the next | | | | transfer.Now, whenever your parents wish to |
| year.]Seems pretty cumbersome though, doesn't | | | | make a gift to each of you under their annual gift |
| it? And, it is. Besides, every year your parents | | | | tax exclusion, all they have to do is transfer one |
| would have to prepare a new deed for each gift | | | | membership unit in the LLC. No further deeds are |
| and would have to record each deed on the land | | | | required, no recording of deeds is required, and no |
| records. Plus, they'll probably need an attorney to | | | | attorney's fees are required. The transfers have |
| take care of all that for them. The costs for all | | | | to be reflected on the books of the LLC, but |
| that work, including the recording fees, can be | | | | that's it. Not only does the LLC make it very |
| quite substantial. Then, when all of you decide to | | | | easy to transfer the property in the first place, it |
| sell the condo, you'll have to put 34 different | | | | also makes it very easy to manage the property |
| deeds together, with every owner signing off on | | | | and eventually sell it when the time comes.That's |
| the sale.There's still another problem - that is, you | | | | the preferred way to transfer real estate or any |
| have to make sure that your values are all | | | | other type of property to multiple beneficiaries |
| correct. You see, if you give money, there's no | | | | under the annual gift tax exclusion.Next time: Is it |
| queston as to what the value of the gift is. With | | | | so terrible if you go over the annual gift tax |
| anything besides money, whether it's real estate, | | | | exclusion amount in any year?Attorney Michael P. |
| stock, bonds, collectibles, etc., there is often no | | | | Pancheri is a practicing attorney and the founder |
| readily ascertainable value. So, you need to have | | | | and CEO of the Living Trust Network. You may |
| the property appraised by a qualified appraiser so | | | | contact him by email at You may also contact |
| that the value comes under the annual exclusion. | | | | him at the Living Trust Network's web site. Its |
| There are rules for doing this and, if you don't | | | | URL is 2005. LivingTrustNetwork, LLC. |