Need retirement asset transfer suggestions

[rdoty]

My first time here so I hope this is in the right place.

First, a little about my situation. I'm 73YO male, retired, living on Social Security, not married and raised my granddaughter singlehandedly for the last eighteen years. Next fall she goes off to college. She's a very well rounded young lady with excellent values and good managing her finances, which at this point are her savings account and debit card.

My house is almost paid for, I have two IRA accounts and three broker accounts and a custodial account which becomes hers in a couple months. In sum my total assets are right at $1mil. I would like to gradually transfer assets to her and am looking for suggestions on best way to do that.

I intend to pay most of her college expenses directly to minimize her student loan obligations. I know I can transfer up to $14000 annually and I'd like to do that in such a way that she receives half and the other half goes into maybe a trust. Can I put more than that into a trust and what are the tax implications? Is there a way to include her on the title to my home so she's part owner?

[Retired To Win]

Rdoty...

Making your granddaughter a co-owner of your house and thus getting it to become hers without going through probate when you are gone is pretty simple. Just put her on the title as a joint owner of the property. In my state (Virginia) you can even do that without having to pay any kind of state fees by doing the transfer via what I'm going to call an "affection" deed. Check with your attorney or county real estate office for your proper particulars.

Good luck!

[sandrark]

Rdoty...

Making your granddaughter a co-owner of your house and thus getting it to become hers without going through probate when you are gone is pretty simple. Just put her on the title as a joint owner of the property. In my state (Virginia) you can even do that without having to pay any kind of state fees by doing the transfer via what I'm going to call an "affection" deed. Check with your attorney or county real estate office for your proper particulars.

Good luck!

Transferring part ownership of the house is a bad idea, from a tax perspective. It means the granddaughter gets the grandfather's BASIS in the house. If and when she sold it, she'd be responsible for taxes on any gain over $250K.

There are also gift tax considerations - the grandfather would be required to file gift tax returns that, in conjunction with the rest of his estate, could create issues under the lifetime cap for gifts.

DO NOT do this unless you clearly understand the tax implications.

IIWY, I'd put the house in a revocable trust, with the granddaughter as the beneficary. In that way, it escapes probate, and passes on a new "stepped up" basis value based on date of death of the grandfather. MUCH cleaner for tax purposes, although you might pay $1000 to get the trust set up, along with durable POA for financial and medical decisions.

[kork13]

IIWY, I'd put the house in a revocable trust, with the granddaughter as the beneficary. In that way, it escapes probate, and passes on a new "stepped up" basis value based on date of death of the grandfather. MUCH cleaner for tax purposes, although you might pay $1000 to get the trust set up, along with durable POA for financial and medical decisions.

I am most definitely NOT an expert in estate planning, so upfront, I want to strongly recommend that you discuss your intentions with a qualified, well-recommended estate lawyer.

With that said, I agree with sandrark. In most cases, a living revocable trust will be the "cleanest" method for transferring generational wealth -- it essentially creates a separate legal entity that owns everything you want to give to her. You can transfer your home, brokerage accounts, and possibly the custodial account (I don't know much about these) to the trust, which would be set up in your name, for her benefit upon your death. You can specify in the trust that you have full rights to living in the home for the rest of your life. Additionally, you should set up your IRA's to list the trust (once established) as the beneficiary of your IRAs. Upon your death, the IRA's would immediately (no courts, lawyers, or probate) be transferred into the ownership of the trust by the IRA's investment company.

One thing to consider with setting up a trust is who will be named as the trustee -- you need someone to manage & execute the trust's directives (which you will lay out in the trust's founding documents). Because you are raising your granddaughter alone, I assume that her parents (and potentially any aunts/uncles?) are out of the picture that for one reason or another... You can designate a trusted, legally-/financially-smart friend or family member as the trustee, or you can hire a trust management company for a fee (typically between .25%-.75% of assets annually, which you would want to be laid out in the trust documents). Bottom line, you need someone who you trust, is ethical, and who will execute the trust in a sound fiduciary manner.

For the annual gifts, as I understand it, as long as you stay below the annual gift limit, neither you nor your granddaughter need to file any tax forms. Another option (if you want to do something more significant all at once) would be to utilize your lifetime gift exemption limit ($5mil limit, I believe), which WOULD require tax documentation, however it would allow you to give her a larger sum (above the annual limit) all at once. Again, discuss this with an estate lawyer.

[Nutria]

She's a very well rounded young lady with excellent values and good managing her finances

I'm sure she is. But dumping a ton of cash on a young person just entering college might change her personality, especially if far from home surrounded by lots of irresponsible people.