Gifting Property - Avoiding Capital Gains

Q. Is there a way that my mother can give her 4 sons each a investment property that she owns without paying capital gains or any sizable taxes? She is 75 years old and it is too much for her to handle even with a property manager. We know that if she passes away in the future we avoid capital gains. Is there a way that she can gift it or put it in a trust?

A. The issue is that if she gifts the property to her sons then the sons will inherit the cost-basis and then will have to pay capital gains taxes on it when sold. If she retains ownership till death, then the property receives a stepped-up basis so when sold there wouldn't be any capital gains. She is still considered the owner even if she moves it into a Living Trust.

If she has an estate valued over $1.5 million then she will be subject to estate taxes. By the way, that is based on the market value of all her assets and even includes life insurance she owned. If that is the case, then it will be cheaper to gift the property prior to death because the capital gains rate is lower then the estate tax rate. Also, gifting the property would reduce the size of her estate and might keep any estate taxes from being owed.

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