Gifting House to Son or Daughter

[dyne]

WHO is it that continue to advise older taxpayers to make a gift of their house to their
son or daughter? Is it Attorneys?

[DaveO]

I just had a client gift their house to one of their kids to qualify for Medicare. They were instructed by a person at the nursing home to do so.

[Burke]

I just had a client gift their house to one of their kids to qualify for Medicare. They were instructed by a person at the nursing home to do so.

Was this person already in the nursing home? Do they realize it is a 5-yr lookback?

[dyne]

I suspect that it is Many people giving such bad advice. I have even had two people
argue that they would RATHER have their son or daughter pay a HUGE tax upon the
sale of the inherited house in order that the parent could qualify for MEDICAID. For the
year 2014 the home is disregarded if it has an equity of LESS than $500,000. Not sure
about present rule regarding the house.

[JohnH]

It's beyond me why anyone would take tax planning advice from someone at the nursing home, when there are more than enough mechanics and hairstylists out there much more qualified to render this sort of complicated guidance!

What COULD they have been thinking?

[JG EA]

I suspect that it is Many people giving such bad advice. I have even had two people
argue that they would RATHER have their son or daughter pay a HUGE tax upon the
sale of the inherited house in order that the parent could qualify for MEDICAID. For the
year 2014 the home is disregarded if it has an equity of LESS than $500,000. Not sure
about present rule regarding the house.

I would like to point out that the $500,000 thing may be true, but don't forget about estate recovery. If the home was in the name of the Medicaid patient, various states recover all of the assets when the patient dies to pay off the medicaid bill. Various assets are not required to be spent down to go into a nursing home under Medicaid, but those assets can be state property after death.

[taxea]

It is most definately "they and them" who are responsible. You all know who "they and them" are. Those people who make you look at your client and ask, "Really, where did they study tax law?" You know them...you listen to them spout their misinformation all the time when they don't realize you are listening.

[DaveO]

Was this person already in the nursing home? Do they realize it is a 5-yr lookback?

They were already in the home and the kids were faced with having to start footing the bill. I don't know who enforces the look back but assume it's the county at some level since that is who is paying the bill. I'm no attorney but think this action fits the definition of "conspiracy to commit Medicare fraud" pretty well.

[Burke]

I just had a client gift their house to one of their kids to qualify for Medicare.

To "one" of their kids? Oh, brother. Another whole set of problems.

[S T]

Actually

It is Medicaid or Medi-Cal (Calif) - it is Not Medicare

Regardless, it is State related - so you would have to look at the State Requirements to Qualify. There are a lot of attorneys that do this planning "ElderCare Attorneys" and then of course we encounter the client that is trying to accomplish it themselves.

I have found that the person entering the Nursing Care is allowed to keep their personal residence, if the intent is that they are going to return. State specific though - some States will only allow the person to retain the ownership for a short period of time and there is a possibility that the State can seek recovery against the the Equity in the House in the event of death.

Here is a link written by an attorney that practices to Medicaid Planning-Elder Law - for what it is worth - just the basics - so there is more posted somewhere http://ezinearticles.com/?Cant-I-Jus...aid?&id=433119

I had a client in Calif that the Elder care attorney created a "transfer to her 5 children" of the personal residence and in the cover sheet it plainly says " you are transferring your primary residence in exchange for their (5 children) participation in a Lifetime Right of Occupancy Agreement, ------- in order to minimize any estate claim for Medi-Cal benefits paid on your behalf. -----"I wish to acknowledge that a gift Quit Claim deed was executed ----- and this set of documents is being executed to complete the donative intent with regard to the residence. ----- Therefore all are concurrently executing a Personal Lifetime Right of Occupancy agreement, which gives you (the Mother) exclusive occupancy of your residence" Another paragraph cites Linderme Estate v. Commissioner, 52 T.C. 305 (1969) regarding Federal Estate Tax ---- and there is an Affidavit of Exempt Medi-Cal Residence.

It required a Gift Tax Return (spelled out in the Instruction letter) Stated all of the Tax consequences to the children that the property was transferred to - no step up in basis -- and that the children could NOT sell the property or transfer during the Mother's Lifetime.

The transfer took place early 2009 - Mothr entered the Nursing Home (Calif) and Mother passed away in early 2010. There was a clause in the agreement that stated "The Transferor and the Transferees wish to acknowledge that, despite the Deed, the Transferor is to retain a "Personal Lifetime Right of Occupancy " in the Home. Such retained right of occupancy is intended to fulfill the requiements of Dept of Health Services All County Wellfare Directors Letters No 90-01, dated Jan 5, 1990, page 5 Questions and Ansers No 7 and allowing transfers of exempt assets and transfers of a home based upon intent to return home, respectively.
So now on this client - Mother passed away - Medi-Cal did not attach liens on the property and paid for Nursing Care - the children have title to the Personal Residence - which is now a rental - and will sell at some point.

I have about 20 pages of documentation from the Attorney on this transaction, and it is very explicit.

Sandy

[Burke]

So now on this client - Mother passed away - Medi-Cal did not attach liens on the property and paid for Nursing Care - the children have title to the Personal Residence - which is now a rental - and will sell at some point. Sandy

Which is probably one of the reasons Calif is broke. Taxpayers picked up the bill and kids have, presumably, the biggest asset of their inheritance. If the Mother went into the nursing home and died within a year, the "intent to return home" statement seems incredulous.

[S T]

Burke, I agree with your comment, I was just pointing out how an Attorney can manage some planning -- right or wrong - and again it is State Specific.

California has a "multitude" of Elder Care Attorneys for Medi-Cal planning, however, at the end there is no step up basis on the property so the State will receive the tax on the Sale of the property at the Mother's Basis - in this case very low - - Feds will as well. It is clearly spelled out in the documents.

And if you are dealing with Calif - there is NO Capital Gain Treatment - the gain will be taxed at the highest rate - and possible Alt Min Calif.

So in this particular situation I used as an example, the children might have been better off "absorbing" the nursing care - since it was a short period of time. Children still hold the property - it is a rental which is being depreciated, and the property is old ( more than 40 years) in need of some dire repairs - such as roof (estimate $ 20,000), plumbing, electrical (who knows) and on my last conversation with one of the children (my client) is in no condition to be sold. Don't have acutal $ amounts, but based on what I do have supplied to me - my best guesstimate is that "Mother's basis" is approximately $ 35,000---- I don't have the latest value on the property, but when I checked the last time maybe $ 160,000 - $ 180,000 - On the books for $50,000 Dwlg - I am not sure the land value.
Makes you wonder ???

Sandy