House Now or Later?
For tax reasons David's mother-in-law should NOT go ahead and put her house in his name, rather than put it in her will.
QUESTION: David’s mother-in-law wants to put her home in her son’s name now instead of putting it in her will for him. Should she do that?
ANSWER: No. She needs to leave the house to him in a will.
First of all, you can’t give someone a gift valued at $11,000 or more without being taxed unless you use the Unified Estate Tax Credit process. If she decides to do this, she will need an estate attorney to assist her. Otherwise, she’ll have over $100,000 in taxes by giving him the $250,000 home.
Here are more reasons why she should not deed the house to her son now.
If she deeds it to him and he wants to sell it after she dies, he will pay capital gains tax on $230,000. That’s just stupid! If he gets it in the will and wants to sell it, he will have no capital gains tax.
If she deeds it to him now, dies and he lives in it for two years and is married, he may be able to avoid the capital gains tax if he chooses to sell it. But there are too many variables involved in that option.
Finally, if he sells the house six or seven years later and the house has dramatically gone up in value, he will have to pay a ton in taxes.
In no case is this a good idea. Just go with the will.