Will a Gift I Make To My Married Child Be Community Property?

A very generous father contacted me over the weekend. He wanted to buy a house for his son, but was concerned that the house would become community property because his son was married. He wondered if there was a way he could ensure that the gift to his son was classified as separate property.

In Texas, all property is classified as community or separate property depending on when and how it was acquired. Property acquired before a marriage is classified as separate property, while property acquired during a marriage is presumed to be community property, except if is acquired by gift or inheritance.

Therefore, if the father makes a gift to a child, even if the child is married, that gift is by definition separate property. To ensure that the property is classified as only his son’s separate property, he should take care that only his son’s name is listed on the deed.

This is important because if the father intends to purchase a house for his son, but the deed names both the son and daughter-in-law as joint owners, then he would have made a gift of half the property to his daughter-in-law.

Depending on how much the property is worth, it is important that the father discuss the tax ramifications of the gift with his CPA.

Generally, each American taxpayer can give up to $15,000 to an individual recipient in one year without any gift tax consequence. In the event that gifts in excess of that amount is made in one year, it will be necessary to report the gift to the IRS; however, that does not necessarily mean that gift taxes will be due.

In addition to the annual gift tax exclusion, taxpayers have a lifetime exemption of $11.2 million in 2018. By filing the necessary reports to the IRS, taxpayers can simply claim some of their lifetime exemption, which will reduce the available exemption at death. Since most of us will not have taxable estates when we die, we will have plenty of cushion to avoid paying gift tax.

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