A friend of mine called me the other day. He said he wanted to help his son out by giving him $350,000 toward the purchase of a home. He wanted to know the best way to structure it.
We talked about it for a few minutes. These kinds of arrangements frighten me because if the help is in the form of a loan, the child rarely ever pays it back, it creates friction among all family members, and it could cause the parent(s) to have adverse income tax consequences.
If the help is in the form of a gift, then the parent(s) use some of their gift and estate tax exemption, but at least there will be no 3% Louisiana gift tax because that tax was eliminated from the law earlier this year.
After weighing the factors involved, he decided to make an outright gift to his son. He acknowledged that he and his wife would have to file a federal gift tax return due April 15, 2009, but no gift tax would be due, and the gift would have no income tax effect to himself or his son. But he felt that this would not penalize him since their estates were under estate tax exemption (although who knows what will happen with the estate tax in the future).
There are a number of factors to weigh when transferring assets to your children during your lifetime, such as, income tax, capital gains tax, gift tax, estate tax, liability concerns, ability to repay loans, in-law problems, children's divorces, and much more. If you want some help in figuring the best way to transfer assets to your child, send me an email at paul@rabalaislaw.com
Paul Rabalais
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