Personal Finance | Why Can't Give Property Directly to Children

Summary: Pass the property as inheritance to take advantage if the step-up tax benefit.

As a parent, if you consider transferring your property to your children, you need to pay attention to one thing: the transfer of property during your lifetime is a gift, which not only has gift restrictions but also has value-added tax. For example, the value of parents' purchase of property is 500,000. After 15 years, the value of the house increases to 1,500,000. If the house is given to the child at this time, the value of the property received by the child is 1,500,000 of which 1,000,000 value-added needs to be taxed.

To solve this problem, the best practice is to use the provisions of the inheritance's "step-up in tax basis", put the property into the Living Trust, and designate the child as the beneficiary of the trust. In this way, when inheriting property, the value of the property will be subject to the value of the child's acquisition, which can avoid the problem of value-added tax. Note that irrevocable trust does not enjoy this benefit.