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Monday, June 10, 2013

Transferring property among family members - a potential income tax nightmare

I get an awful lot of questions about tax on this blog which I can't and don't answer because I'm not an accountant. It's nice that people think we lawyers know everything, but we don't. Accountants know different material than lawyers, and because of that I sometimes have to tell commenters on this blog that they'd be better off asking an accountant their questions. It's not that I'm unwilling to answer questions, but you need to hear information from experts in specific fields.

Many of the questions have something to do with tax on the disposition of the parents' home. Why people are so darn quick to transfer their home or some portion of it to someone else without knowing the consequences, I'll never understand. But transfer it they do, and that results in all kinds of issues from legal to tax to family dynamics.

I recently came across an article from Mark Goodfield, a Canadian accountant with more than 25 years of experience and whose blog is called www.thebluntbeancounter.com . In the article, Mr. Goodfield talks about the tax consequences of inter-family transfers of property. I strongly suggest that those of you who have added your children's names to your home or your investments read the article by clicking here.  I think you might be in for a surprise in terms of the tax problems you may have created for yourself or your kids.

7 comments:

  1. My family experienced this particular income tax nightmare while trying to transfer my grandmother's house to my uncle. It turns out there was an IRS tax lien on the property that she was not even aware of. We sought the help of a reputable tax service to release the lien, and my uncle is currently in the process of having the lien withdrawn. I agree that everyone experiencing tax issues such as these should seek out a professional, though I must say the information you have provided here is helpful-- despite the fact that you are not an accountant!

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    Replies
    1. Hi Jess,
      Nope, I'm no accountant, though I think being one would help me answer a lot of the questions my readers ask!

      Lynne

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  2. I agreed to an Out of Court Settlement of the family home, but did not agree to lift my lien for Committee duties and services to the deceased. The Court appointed Administrator is now threatening to resign if I do not lift it. What are my rights?

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  3. My father recently passed away and has left his half of a recreational property to her, she is not interested in the property and may wish to sell it....I understand she would then pay CG's on the transaction - my question is, if she were to gift this to me and I in turn sold it - would there be a benefit in a lower CG?
    Two interests here, keeping the CG low for her taxes and for me to obtain the property.

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  4. Hi Lynne
    Say a person wills his home to beat split between his 3 children. None of them want the house so it needs to be cleaned up and sold. However one of the children is squatting in the house and won't leave. Has never paid rent or utilities. How can the other 2 children get him out so they can prep the house for sale?

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    Replies
    1. That's the job of the executor. Unless the other children are the executor, they should step back and let the executor do it. Give the child who lives there a notice as if he or she were a tenant, giving a deadline. Go ahead with the probate. If necessary, enlist the help of the local sheriff to get the squatter out.

      Lynne

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    2. Thank you Lynne this is very helpful!!

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