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Question:

In your Capital Gains summary you mention life estates and joint ownership as options to transfer property to children. Wouldn’t either of these options result in a gift tax? We have been considering adding our daughter to our deed (now in a revocable trust) since she and her family now live with us, but we haven’t acted.

Response:

Generally these transfers do not cause a gift tax for two reasons. First, because almost no one pays any gift tax. Under the the gift tax laws, gifts only need to be reported to the IRS if they exceed $19,000 (in 2025) in a calendar year from one individual to another. But there’s no gift tax until the combined total of all taxable gifts exceeds $14 million, twice that for a married couple. So, technically if you make a gift to your daughter in excess of $38,000 (between you and your spouse), there’s a requirement to file a gift tax return, but there will be no penalty if you don’t.

Further, there are ways to avoid even the technical requirement of a gift tax return. In our office, when we create life estates for clients we include a testamentary power of appointment. This achieves two goals. First, it allows you to change who will ultimately receive the house through your will. If you make no change, the house passes to your daughter upon your death. But if circumstances change in any way so it no longer makes sense for the house to go to your daughter outright — for instance if she became disabled and it made more sense for the house to go into trust for her benefit — then you could make that change. Second, this testamentary power of appointment prevents the creation of the life estate from being a completed gift requiring a gift tax return.

With respect to adding your daughter as a joint owner, when people take this step they usually do it “for estate planning purposes only.” The concept is that while your daughter will be on the deed, everyone understands that for practical purposes you and your spouse remain the owners of the property. The purpose of adding your daughter is simply to avoid probate. While this is not quite as clear cut as with the testamentary power of appointment in a life estate deed, it’s generally understood that no completed gift has occurred.

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