How to Transfer Property to a Family Member

Feb 1

Imagine that your grandmother has a property in Hawaii that she wants to transfer to you. Pretty sweet, right?

However, just like anything in real estate, transferring property to a family member is more complicated than it sounds.

One of my clients was facing this exact situation. Their grandmother owned a property in Hawaii valued at around $350,000 with an existing $50,000 mortgage and was considering transferring it to them. Unfortunately, my client lacked the funds to purchase it outright.

This situation raises a crucial question in real estate transactions, especially within families: How can you transfer property to a family member without legal or financial complications?

3 Options for Transferring Property to a Family Member

1. Down Payment and Seller Financing

The first option I suggested involved my client making a $50,000 down payment.

This would allow the grandmother to pay off the existing mortgage, removing her name from the mortgage and title.

After that, she could engage in a seller carry-back for the remaining $300,000.

With this arrangement, the client would make payments at a mutually agreed interest rate, enabling the grandmother to exit the title and receive a steady income stream in her retirement years.

2. All-Inclusive Deed of Trust

Another approach is using an all-inclusive deed of trust.

Here, a promissory note and a deed of trust are established for the full purchase price of $350,000. The client would then make payments on this amount while the grandmother continued handling the $50,000 mortgage payments.

3. Gifting the Property

The client also mentioned the possibility of the property being gifted.

However, gifting real estate can lead to tax implications, usually for the donor. If the grandmother opted for this route, it's crucial to execute it in a manner avoiding tax triggers.

Tax Implications of Gifting Property

Disclaimer: I’m a real estate professional, but I’m not a tax professional. Be sure you’re also consulting an accountant or tax pro when navigating a real estate transfer.

Gifting a property can be structured as part of an inheritance. With the current exemption on inheritance taxes being $13.6 million, the grandmother can declare the $350,000 property as a portion of the client's inheritance, effectively using part of her exemption limit.

This strategic move would leave approximately $13.25 million of the exemption limit for future bequests.

The Importance of Professional Guidance

Regardless of the chosen method, it's vital to navigate these transactions with caution and professional advice.

Involving attorneys, accountants, escrow, and title experts ensures that all parties understand their rights, responsibilities, and the tax implications of transferring property to a family member.

With the right approach and professional assistance, transferring property to a family member can be a beneficial arrangement for all involved. It's not just about making a transaction – it’s about preserving family relationships and ensuring a smooth transfer of assets across generations.

Did you find this helpful? If so, I’d love to hear from you. Simply shoot me an email at brent@brentthebroker.com. Until next time – ALOHA! 🌴

Brent Edwards (aka Brent the Broker) is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas. Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.