Q: My wife and I currently live with my mother-in-law and take care of her. She owns five acres of land. We would like to build a house on that land. She is all for it.

However, our mortgage lender has indicated that we cannot build on land owned by somebody else. We have heard of a “gift of equity.” Is there a way to have some or all of the land transferred over to my wife’s name?

A: If your mother in law owns five acres of undeveloped land, you have quite a few options, each of which will help solve your problem. I’m going to assume that you are not currently living on the five-acre parcel with your mother-in-law.

If the land’s value is small, your mother in law can gift you the land. Under current tax law, she can give you and your wife each up to $12,000 per year. She can give you $24,000 worth of land today, another $24,000 worth of land next year, and so on.

This won’t work as well if the value of the land is quite large. If she simply transfers ownership of the land to your wife, your mother-in-law will have to report the gift to the Internal Revenue Service.

Another option you have is to purchase the land from your mother-in-law. You can finance the purchase along with your construction loan for the building of your house and your mother-in-law can return the cash to you over time in annual gifts of $12,000 per person.

You can also sit down with an estate planning attorney to devise a method to transfer the title of the land to you over time. There are certain estate planning vehicles you can use to transfer the land to you without causing your mother-in-law the tax issues that she might have if she did it all at once.

A final option is for your mother-in-law to build and own the house with you. You can set up a trust that would transfer title to the house and property to you and your wife over time.

To make sure the deal is at arm’s length, you can document your mother-in-law’s contribution of the land, along with your contribution of the cash to build the property.

One last piece of advice: if your mother in law has owned the land for a long time and it has appreciated in value substantially, she might not want to sell the land to you. If she sells the land to you, she’ll have to pay taxes on the gain from the sale.

You and your wife and her mother should sit down with an estate planning attorney to figure out how best to accomplish your goals.

Aug. 20, 2006.