Be Careful Deeding Real Estate To A Family Member Before Death. The IRS Is On The Hunt To Impose Gift Tax.

Clients often ask me:  “Should I deed my home to my kids now [before I die] to avoid probate?”   This question generally arises when they are told by their realtor/barber/uncle/friend/etc. (you get the point) that this is the best way to do their estate planning.  The short answer is NO, NO, NO!    Well, now the IRS has given us one more good reason why NOT to rely on a deed (whether a quitclaim deed or warranty deed) to transfer property prior to death.

The following is an excerpt from Forbes writer William P. Barrett, from an article titled “IRS Targets Family Real Estate Transfers”:

As part of a new national hunt for gift tax evaders, the IRS has asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010. If granted, the sweeping request could expose many Californians–especially those who didn’t file federal gift tax returns–to audits as well as penalties or even substantial back taxes. The little-known lawsuit, called “In the Matter of the Tax Liabilities of John Does,” was filed in December on behalf of the IRS in federal court in Sacramento, the state capital. That’s the home of the California Board of Equalization, which oversees property tax issues across the state. No action has been taken yet on the request. The IRS all but admits it is going on a fishing expedition for John Does–but one it considers to be in well-stocked waters. An affidavit attached to its lawsuit signed by Josephine Bonaffini, a Boston-based official of the national IRS Estate and Gift Tax Program, states that the agency already has obtained official real estate transfer information from 15 other states [not Michigan – yet] and found widespread noncompliance.  Nationally, Bonaffini said, “I estimate that between 60% and 90% of taxpayers that transfer real property for little or no consideration to family members fail to file a Form 709 as required by the internal revenue laws.”

So, the short answer to the question of whether you should deed real estate prior to your death as part of your estate plan is now even a more adamant NO, NO, NO — do not deed real estate to your family members (or anyone else), at least without understanding the tax consequences.   And, by the way, there are several strategies that will allow you to avoid probate, without having to worry about the tax consequences.

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One Comment on “Be Careful Deeding Real Estate To A Family Member Before Death. The IRS Is On The Hunt To Impose Gift Tax.”


  1. It’s such an interesting post. I really like it. You shared a really good information I appreciate it.really helpful.Thank you and keep sharing.
    Jeffrey T. Angley


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