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Author: MrMEJackson One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Home as gift Date: 2/13/2002 9:53 AM
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My mother has asked me to make arrangements to have all of her property, (home and several acres of farm land) transferred to me. My attorney says it would be wise for her to convey the property to me. She would be living there for the rest of her life of course. I suppose my question is... Are there some tax consequences for me in such a conveyance of property? I can't imagine that there aren't. I thought I'd get a little advice before I visit with the attorney and cpa.
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Author: lisavh2 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58896 of 121061
Subject: Re: Home as gift Date: 2/13/2002 10:07 AM
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By transferring now instead of inheriting the property you lose the stepped up basis. You may end up paying more capital gains tax later if you sell.

Lisa

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58950 of 121061
Subject: Re: Home as gift Date: 2/13/2002 8:51 PM
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MrMEJackson writes:

My mother has asked me to make arrangements to have all of her property, (home and several acres of farm land) transferred to me. My attorney says it would be wise for her to convey the property to me. She would be living there for the rest of her life of course. I suppose my question is... Are there some tax consequences for me in such a conveyance of property?

I reply

Congratulations on looking before you leapt! You'd be amazed at how many similar questions we get in the context of "Last year my mother transferred to me . . . ."

I see at least three concerns here. First, as has already been pointed out, if you receive the property via gift, rather than inheritance, you will get only your mother's basis in the property. Thus, when you eventually sell it, you will pay more in capital gains taxes. Moreover, because you will also receive your mother's holding period, you will not be eligible for the ultra-long term 18% capital gains rate.

Second, your mother might be triggering gift tax issues for herself. Even if you are married, and assuming that your mother no longer is, she can give you and your spouse only $22,000 before starting to use up her lifetime unified gift-estate tax exclusion. Depending on the size of her estate, this may or may not be a problem, but at a minimum your mother should be aware of the possibility.

Third, at least on this Board, the most common reason for the parent of an adult child to transfer "all of her property" is to establish Medicaid eligibility without spending down the estate. This is a very thorny legal area and it is all too easy to commit a crime while trying to advance this otherwise laudable goal. If that's what's going on, I urge you to consult an attorney who specializes in elder law. --Bob

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Author: MrMEJackson One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58962 of 121061
Subject: Re: Home as gift Date: 2/13/2002 10:22 PM
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Thanks for the reply....

This is not a Medicaid deal. She is only 57. I really think this came about because her father recently passed away. And as she and her sister got into the business of closing down his affairs, he had no will. No big deal...not a large estate. But she feels it would be best to put things in my name now. I suspect that "could" be true..but not necessarily so. My attorney friend thinks it may be a wise idea, my accountant friend thinks maybe not. We shall see! More homework to do.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58973 of 121061
Subject: Re: Home as gift Date: 2/14/2002 12:56 PM
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MrMEJackson: "This is not a Medicaid deal. She is only 57. I really think this came about because her father recently passed away. And as she and her sister got into the business of closing down his affairs, he had no will. No big deal...not a large estate. But she feels it would be best to put things in my name now. I suspect that "could" be true..but not necessarily so. My attorney friend thinks it may be a wise idea, my accountant friend thinks maybe not. We shall see! More homework to do."

My condolences on the loss of you grandfather. I suspect that you are correct. If this is in response to your grandfather's passing, the simpler solution might be for her to have a will drafted. That way she keeps her assets and avoids the problem.

I am trying to be delicate here, but if you run into financial difficulties for any reason, how would your mohter feel about living on the farn with her life estate when some other party owns the remainder?

Also, I am no expert on gifts, but I have some recollection that valuing the gift of a remainder interest (especially when a parent retains a life estate) requires valuing the life estate and may also trigger some special IRS provisions that were drafted in response to certain "estate freezing" techniques. IOW, jujst be careful before venturing into the area of gifts of remainders to children.

Regards, JAFO
(posted before reading all responses)


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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58980 of 121061
Subject: Re: Home as gift Date: 2/14/2002 5:36 PM
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MrMEJackson writes (in part):

No big deal...not a large estate. But she feels it would be best to put things in my name now. I suspect that "could" be true..but not necessarily so.

I reply:

I'm hard put to come up with circumstances under which it's better for you to receive the property as a gift than as an inheritance. We've already discussed the adverse income tax consequences, and a number of other things could go wrong as well. On the other hand, assuming that you are your mother's only heir, a simple will leaving everything to you should be relatively inexpensive and could avoid some horrific complications.

I'll suggest just one to illustrate the range of gruesome possibilities. Suppose that the day after your mother conveys her property to you, you're hit by a bus. You, of course, would never act against your mother's financial interests by, say, selling the house out from under her. But would your heirs be as solicitous? Indeed, could they be? Would the receipt of your mother's property push your estate over the exemption limit, so that estate taxes would be due on your death? --Bob

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58989 of 121061
Subject: Re: Home as gift Date: 2/14/2002 9:21 PM
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Just to add another possible scenario, turn Bob's example around. Suppose you are the one driving and cause the accident. The other party is seriously injured, with damages exceeding you insurance coverage.

They come after your assets, which now include your mother's house. They will have no qualms at all about selling out from under her.

--Peter

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59011 of 121061
Subject: Re: Home as gift Date: 2/16/2002 2:22 PM
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A living trust maybe a better option. It helps avoid the cost of probate but if she becomes disabled you can handle her assets for her.
It can be modified any time prior to her death.

Transferring the property to you would loss both her $250,000 exemption on the sale of a primary residence and lose the stepped up basis on inherited property. Currently she has no plans to move but she is only 57. Twenty to thirty years from now she may want to move.

The other issue is medicare. If she expects to need medicare to cover nursing home expenses then planning needs to be done.




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Author: kp0023 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59101 of 121061
Subject: Re: Home as gift Date: 2/19/2002 12:29 PM
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I was thinking of a living trust too. Look into it and see if it is the right thing for your situation. I think a revocable would be fine for not but you might look into unrevocable for later. I think later you might also fill out a form giving you the right to make health decisions for her. Sorry I don't know what the form is called but read about it in Suze Orman's book The 9 Steps to "Financial Freedom" or "You've Earned It Don't Lose It". Another good one is called "The Wealthy Barber". I think these would give you enough info on the living trust and I found all of them at my local library.

Best of Luck with the situation,

Kim

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