I am trying to help an older friend find out information. He wants to know how he can give his grandson $100,000 to build a house out of his estate. Is this possible? His wife died two years ago. I tried to help him find out information, but keep coming up against walls.
We need a few more facts to try to give you some guidance and, as with all answers on this site, please be certain to review them with a local attorney and accountant before proceeding. Unfortunately, without knowing the size of your friend's estate and his ultimate objectives, it is pretty hard to give you specific guidance. Consider some of the following points: If your friend is single, he can give a maximum of $11,000 per year to any person he wishes. Thus, if he wants to give his grandson $11,000 to help the grandson out with a downpayment, he may do so. If the grandson is married, he could also give his grandson's wife an additional $11,000. Obviously, if this is a completed gift and there is later a divorce, it will be treated as if she contributed the money to the house. While many people may give minor children gifts in order to stay within the $11,000 per year gift tax exclusion amount, exercise tremendous caution in this regard. If the grandson has his own children and your friend makes gifts to the grandson's children to help the grandson buy the house, ultimately there will be minor beneficiaries listed on the deed. This could be a big problem in later clearing title. Before your friend even thinks about it, he should talk to a title company and an experienced real estate attorney in his state. What many people do is to plan the gifts over a several years in order to stay within the $11,000 per year gift tax exclusion amount. For example, he could gift $11,000 each to his grandson and his grandson's wife each year. How can the grandson buy the house if he needs all the money right away? Your friend could loan them the difference and then in future years make gifts to the grandson and his wife which they could then use to pay off the loans. You mention that your friend's wife died two years ago. How does this impact the question? If the wife had a by-pass trust or a martial trust formed under her will for your friend, your friend simply may not have the authority to access those dollars in order to make these gifts. Further, since his wife is no longer alive, your friend cannot "gift-split". Gift splitting is where one person joins with a spouse and gives $22,000 per year per donee instead of the $11,000 per year. Another possible planning tip might be for your friend to defray medical or tuition expenses of the grandson and the grandson's family. You can give unlimited amounts for qualified tuition and medical payments if the providers are paid directly without eating into the maximum $11,000 per year gift amount. Thus, by defraying these expenses, the grandson might have other funds available for the purchase of the house. You don't mention anything about other heirs. How many children and grandchildren does your friend have? How are they going to feel if this one grandson receives favored treatment? Is he attempting to equalize this between other heirs? Is he going to equalize it in the Will or with gifts? Does your friend have a comprehensive durable power of attorney with detailed gift-giving provisions which would enable this program to be continued in the event of his disability. There are a host of other ancillary issues which should really be considered. The best bet is for your friend to speak with an experienced estate planner in his state as well as a real estate attorney to address some of the above questions.
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