Look at this scenario; a child comes home to his parents (or vice versa) and lives for three years and pays zero rent or board. Will the IRS under an audit, attempt to pro-rate this free housing as income? BTW, the $1 is simply to remove the liability that a tenant could cause.
Aphie, if you are talking about a large sum I think I know the solution. I suggested this solution once to a woman when she moaned that she could not pass money onto her daughter without gift tax being incurred. She didn't however take the advice as it would have meant that she would have lost control over her daughter and family. Gift tax has however since been abolished in Australia. So short of moving to Australia ( ) I suggest you consider lending money to the person concerned at a minimal interest rate which that person thence can invest into real estate. (Nothing wrong with lending 100% of the purchase cost or perhaps just the deposit amount). Given a long enough lead time (say 10 years) the property will presumably double in value because of inflation and other factors whilst the purchasing power of your loan amount will reduce over that time (assuming there is inflation during this period). Thus you have achieved your objective of passing money on to a family member (or a girlfriend ? ) without someone incurring gift tax. Another way (at least in Australia) may be to ascribe the income from a particular property or other type of investment to another person for a proscribed number of years in which case that person would be liable for income tax on the income but presumably not liable for for gift tax. Another solution may be in the case where the beneficiary of your gift is not earning income at the moment. If you 'employ' her or him the wages become a tax deduction to you and (as the beneficiary is either not earning any other income or is earning income at a rate low enough not to pay tax) there is no income tax to pay nor gift tax. Your question brings up another interesting point (very relevant to me personally) i.e. if you pass some money or other assets onto say your daughter, and considering the fact that perhaps close to 50% of all marriages break down, how do you (at least for this generation) prevent her ex husband running off with half the value of the property (or money) you may have given to your daughter ? Money which you slaved for most of your life and which your ex son in law is now happy to piss up against the wall. Putting a property into a trust will at least assure that the asset is protected - at least for one generation that is). I have some other suggestions to make as well (this post is getting too long) so feel free to PM me. Please note that the above are merely scenarios i.e. the way I see things and that I am not responsbile for any eventual outcomes. One needs to verify the above scenarios with a solicitor and/or an accountant. I am not qualified in either area. freealways
Max there may be other people more qualified to respond on this. The way I personally see things, an adult child who moves back into the parental home couldn't possibly be held to have received a gift if the reason for doing so is to look after a parent whose health isn't too good. In any event who would know whether or not the son or daughter has paid or not paid for the food ? (If however the Big Brother era were to arrive at our doorsteps and cash becomes abolished and all our transactions are done via an identification card now that would be something else). If things are really that bad with the taxation department it is time to question your members of parliament at election time (and before) where they stand in relation to the subjects of gift tax and Big Brother era). freealways
make it an interest-paying loan then they just have to pay taxes on the interest (in theory) i think its perfectly legal but i don't know for sure
>>Its called a Pre-Nup !!!!!!!!!!<< I can foresee that a prenuptial agreement in itself can set up all kinds of resentment. So it isn't quite the best solution. In one situation I am familiar with, the wife was given a property which finished up being in her name. When the subject of protecting that particular asset for her daughter (by leaving the property to her daughter in a will) was discussed the wife was silly enough to talk about the discussion with her husband and it caused untold problems and arguments. Whether the husband was unreasonable isn't the point. The fact is that it caused resentment. So to overcome such problems the better solution would be by setting up a trust to hold the property in. The property will thence be protected in the event of a marriage breakdown as well as the fact that the property is going to be preserved at least for the next generation as well. freealways
By the way, the property which I mentioned in my last post brought in rental equal to reasonable wages. It finished up being lost after some 20 years because it was eventually sold so the husband could start a business. He managed to go broke (because he was an idiot) but I guess he also achieved what he was after (dissolving his resentment about his wife being financially independent from him). freealways