My parents (69 and 70) said they were considering signing their house over to me. Mom’s in ok health, dad is generally poorly. We get on well, I get on well with my brother. I’m considered to be very honest and good with money.
Mom and dad are afraid that if and when mom has to go into assisted living (dad won’t make it that far) that she’ll have to sell the house and use the proceeds to pay for it. If the house isn’t hers, then I’ll get to keep the money when it sells and split it with my brother (which I will).
They haven’t put much thought or research into this. Is it a good idea? Would it hurt my parents? Hurt me? I could see how it could potentially hurt my brother if we had a falling out but it’s been 40 years and knock on wood we’re still cool.
The house is currently worth about $170k, and my house is similar.
Just remember Medicare does look back 5 years (they write 60 months) at financial dealings. We’ve been going through this for my Mom. If your Mom is only 69 or 70 though, your family should be fine.
I believe that it would be considered a gift of that value to you and they would owe taxes on it. It may also be possible to put the house in a trust with you and your brother as the trustee and your parents as the trust beneficiary. An estate attorney could help you find out the best way to handle this.
You never know how your relationship with your brother will go in the future, so get everything in writing about what to do with the house. One thing to consider is how upkeep expenses will be handled. If you pay for all the expenses, utilities, insurance, new roof, etc., then think about how that might affect the split after the sale.
Talk to someone in your area who’s reputable and who has a background in estate law and financial planning (if such a creature exists). I think that what a lot of experts advise in this situation is for your parents to set up a living trust. Your parents still keep their property and their equity until the day they both pass, but they would designate you to make decisions on their behalf when the time comes.
I appreciate that, but you really ought to see an accountant/financial planner/estate planner to figure out the repercussions, and how to do it correctly.
If they are giving it to you, why not give it to both you AND brother? I’m not sure what the benefit is of giving it to YOU to sell when she needs the cash for assisted living, versus her keeping it and selling it herself when she needs the $. Is this all intended to avoid Medicaid spend-down?
Are you going to be paying the taxes/insurance?
Depending on how you set it up, it could be seen as a sham transaction (tho some sham transactions are permitted.) And it could complicate any estate issues. Do they have a will? If not, they should.
If she doesn’t have a house to sell, how is she going to pay for assisted living?
Medicaid is the obvious answer, but states vary in if/how they pay for assisted living, if she can’t live alone anymore and doesn’t need/want/qualify for full nursing home care. Also, many assisted living facilities either don’t accept Medicaid at all or limit the number of Medicaid patients they accept.
Also, as noted, Medicaid has a five year (60 month) lookback period, so if she gives away (or sells for less than fair market value) any time in that period before she needs care, there will be financial penalties.
A lawyer or financial planner in your parents’ home area who has experience in how that state’s Medicaid programs work can be very helpful. The American Council on Aging has an overview of the types of Medicaid planners and the sorts of fees you can expect.
My only direct experience was with my in-laws; she needed full-time care and he didn’t. Medicaid has special rules for situations where one spouse remains in the community while the other is institutionalized, but they didn’t do much planning until she already had full-on dementia (and then they died within a week of each other anyway), so I’m not sure how useful that example will be.
I was recently told to not have my parents give me their house as it would result in capital gains, based on the difference in value between the price when they bought it, and when I sold it.
If they would give it to me when they pass away, the capital gains would be based on the difference in value between the calculated value at the time of their passing, and when I sold it.
Talk to a local expert, who also knows your financial situation.
Thanks all. I just did some research and found a good thread on a local group recommending estate planners. Sent a few names to my mom for her to check out, and told her that we’d be better off getting professional planning done and not just making drastic “guesses” ourselves. And doing it sooner than later.
One easy thing you can do now without any tax consequences is to check that all their financial accounts have beneficiaries declared. This declares who gets the account if they were to die. It can simplify the estate issues since those accounts won’t go through the estate. Pretty much everyone should do this anyway for all their financial accounts. Typically you just log into your account online and type in who the beneficiaries are. You can have multiple if necessary.
You can also do something similar with the house. It’s typically called a Transfer on Death Deed and filed with the county. It basically says who (could be multiple people) should get the house if they were to die. It’s a relatively simple form, but you might want to have your attorney do it just to be sure.
Be aware that state law varies: in some states, including mine, a transfer on death deed will NOT protect the property from creditors or Medicaid estate recovery, while other states don’t allow them at all.
The federal gift tax exclusion is $11 million, so unless the OP’s parents are extremely wealthy or live in a state with different rules, they won’t have to pay taxes on it. They will have to file some forms with the IRS.
Asset transfers like this should involve attorneys licensed in your state who know what they’re doing. The chances that you’ll figure out how to do this correctly to protect the assets from the government without professional advice are small.
A lawyer can also help protect you and your brother and your parents from other things. For example, if they sign the house over to you and you own it, then you can sell it and force them out. “But I wouldn’t do that to my parents!” you say. And, sure, but what if you die? Then your heirs own the house. Or what if you get a large legal judgment against you? You could be forced to sell “your” (your parents) house to pay it. Etc.
I think the $11M is the lifetime allowance. I think there’s still the annual limit where you have to pay taxes if you give more than $15k to a person in a year. But an attorney would know more.
Back about 20 years ago, I knew a brother who was looking at ways to transfer an inherited house to his sister. They decided against doing a deed transfer since the lawyer said it would be considered a gift by the brother to the sister and the brother would owe gift taxes. But this is 2nd hand, so I’m not sure of all the details.
If you give more than the excluded amount ( $15K per recipient) , you have to file a gift tax return. But you don’t pay gift taxes at that point - say you give your sister $50K. $15k is excluded so you file a gift tax return for the other $35K. But you probably don’t pay taxes on that $35K now - it gets subtracted from the lifetime allowance. unless you have already used it up.
I did this with my father. His NYC apartment (and then the proceeds from the sale of the apartment) are in a trust for his benefit. I’m the trustee. I pay the costs of his memory care residence and medical bills from that trust.
Right. And you have to be extremely wealthy to be able to give away more than $11 million in a lifetime (and that’s the individual number. Married couples get to double it). That’s in the top 1% of total net worth range. It’s also very likely that anyone with net worth in that range already has an estate lawyer.
NOT true----there is a legal concept called the “look back” period.
It may be more than 5 years , too., I think.
You absolutely , positively, need to talk to professional advisors before you do anything. You need lawyers, and financial experts, and tax experts.
YES, it could hurt you. Badly.Very badly.
Talk to lawyers who specialize in elder law in your local area. Not just any regular lawyer, not the guy who you knew in school, not the guy who helped you write a will, or helped you sue your landlord, or helped you with the deed to your house, etc.
You do NOT need anecdotes. You need expert legal advice from licensed professionals.
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My mother had the foresight to set up a family trust for the house about 17 years ago. The trust is made up of me and my five siblings; as the oldest, I am the trustee. The terms said that she was entitled to live there rent free for the rest of her life, but was responsible for paying taxes, insurance, and other expenses. You could specify who would inherit in case you or your brother passed away, but I think such terms would still hold on heirs.
My mother began to suffer from dementia about seven years ago, and eventually needed 24-hour care. At first we paid for it out of her assets, but were eventually able to get her on Medicaid. (We moved some assets before the look-back period, but ended up spending most of them on her before she qualified.) If we had not transferred the house to the trust, Medicaid could have taken it.
My mother passed away last year. We are now in the process of transferring the deed to our six names as co-owners. We do not plan to sell the house immediately, but will split the proceeds six ways if we do.
I would suggest the best plan is to create a trust for the house with you and your brother as (eventual) co-owners. Then it would be protected in case you needed to get your mother on Medicaid (after the look-back period).