A female friend of mine told me this situation and asked for my advice. My advice is going to be talk to a lawyer but I can't put my finger on why it won't work. It seems too easy (albeit situational).
The situation is this:
Two daughters and their aging father (not in good health but also not on his death bed).
Daughter #1 lives with the father in his house.
Daughter #2 lives alone in a townhouse she owns.
If father dies, the house would be sold and split evenly between the two daughters. But capital gains tax will apply (and daughter #2 will pay more tax bc she already owns her own home).
Instead, father is going to gift the house now to daughter #1 while he's still alive and she will immediately take out a mortgage for half the value of the house and gift the money to daughter #2. Daughter #1 will now own the house outright (albeit with a mortgage) and daughter #2 will get 50% of the house's value. No taxes.
So besides the obvious (a whole lotta trust needed to make this work lol), what's the flaw in their plan? I feel like this is too easy and they must be missing something but I can't put my finger on it. Depending on how long the father lives the house will accumulate in value so there is the lost value that daughter #2 won't get if she's paid out now but that's not really the tax question.
Anyone know anything about this tax/estate planning stuff?
The situation is this:
Two daughters and their aging father (not in good health but also not on his death bed).
Daughter #1 lives with the father in his house.
Daughter #2 lives alone in a townhouse she owns.
If father dies, the house would be sold and split evenly between the two daughters. But capital gains tax will apply (and daughter #2 will pay more tax bc she already owns her own home).
Instead, father is going to gift the house now to daughter #1 while he's still alive and she will immediately take out a mortgage for half the value of the house and gift the money to daughter #2. Daughter #1 will now own the house outright (albeit with a mortgage) and daughter #2 will get 50% of the house's value. No taxes.
So besides the obvious (a whole lotta trust needed to make this work lol), what's the flaw in their plan? I feel like this is too easy and they must be missing something but I can't put my finger on it. Depending on how long the father lives the house will accumulate in value so there is the lost value that daughter #2 won't get if she's paid out now but that's not really the tax question.
Anyone know anything about this tax/estate planning stuff?
