Mother's house gifted to kids

[JenMO]

Mom signed over her home to the kids. Mom lived there for a while, then had to go to the nursing home. Kids hoped Mom would come back home, but died in the nursing home. Kids sold home after Mom died. There was no life estate mentioned in the gifting, but Mom intended to live there until she died and the kids intended on her living there, too. Can the kids use FMV at time of Mom's death for their basis, or do they have to use Mom's basis in the home?

[myerstaxes]

Don't You Just Hate it When Clients Do this!?

I am afraid that the kids get no stepped up basis...Gift basis is the same basis as the mother had in the home...I just had a client whose dad did this as well...The FMV is high, his basis is really really low...Why do they not get advice before they do these things??

[solomon]

Mom signed over her home to the kids. Mom lived there for a while, then had to go to the nursing home. Kids hoped Mom would come back home, but died in the nursing home. Kids sold home after Mom died. There was no life estate mentioned in the gifting, but Mom intended to live there until she died and the kids intended on her living there, too. Can the kids use FMV at time of Mom's death for their basis, or do they have to use Mom's basis in the home?

I would think there is a deemed life estate by her remaining in the home - thus FMV at DOD.

[Gretel]

I agree with Solomon. But it also depends on the state rules.

[myerstaxes]

She Did not live in the home

I thought I read that the mother was in a nursing home, not in the residence? Does that not change the picture? I am not arguing, just trying to learn...I did read that if the gift takes place within six months of death, then a stepped up basis is used...I really hope they get the stepped up basis...

[S T]

Question

Would it not follow the rules if the intent of the mother was to return to the home, it was a temporary absence in the nursing home. Much the same as the Medi-Cal/Medicaid rules.

Mother did not intend on going to the Nursing Home and die, Mother intended to go to the Nursing Home to get better and her intent was to return home.

Sandy

[myerstaxes]

Good Point Sandy

I overlooked that part in reading the question...Then it would appear for all facts and circumstances it was still her home, even if the paper work was done to transfer title to the children...
Thanks! My stiutation is different, the Dad in my case is alive and well and the son actually is renting out the property...Always an interesting twist in taxes...Never a dull moment...LOL

[solomon]

I thought I read that the mother was in a nursing home, not in the residence? Does that not change the picture? I am not arguing, just trying to learn...I did read that if the gift takes place within six months of death, then a stepped up basis is used...I really hope they get the stepped up basis...

The original post clearly stated the mother did live in the home for a period of time.

[RLymanC]

To Bad

If the Mom deeded the house to the kids,,,,no steped up,,,it's that simple.

[myerstaxes]

Yep, I said I overlooked it

I did admit to skimming over that part and not getting a clear understanding...Please pardon my rush in reading...It is a busy time...smile

[barzillai]

I am dealing with a couple of similar situations. TTB p.21-27 says a life estate has to be put on the deed when it is transferred. However, Solomon mentioned a deemed life estate. What is that? Does it mean a life estate can be inferred from intent even if it not included in the actual deed? I am new in dealing with these situations, so I want to make sure I understand everything. Thanks.

[veritas]

I guess what he is saying

is the mother still retained some control over the property so it would be included in her estate.

[S T]

So Where are we now

So now what is the consensus of opinion?

Do they get a step up or not?

Sandy

[LawrenceGR]

Similar Situation

I had one of my clients tell me her mother sign over her(mother) house to her(daughter) on her death bed. The wrinkle here is that the mother sold the house to someone with a balloon due in six months thus making the daughter the benificary of this note. I'm not sure exactly how this is all going to shake down, thank goodness it should happen when the season is over.

[Bees Knees]

TTB Small Business edition, page SB10-25:

Joint tenancies at death. If the original owner is still a joint tenant
at death, the value of the entire property is included in the
gross estate on Form 706. If the gift was reported on Form 709, the
taxable amount is not included in adjusted taxable gifts on line 4
of Form 706. Any gift tax paid is credited to the estate. The asset
is inherited and receives stepped-up basis.

Life estates and remainders. The same rules apply when an
owner reserves a life estate and transfers the remainder interest.
The transfer is a gift. If the original owner is still a life tenant at
death, the value of the entire property is included on Form 706.
The taxable gift reported on Form 709 is not included on Form
706. The asset receives stepped-up basis.

In other words, anything that must be included on the 706 as part of the gross estate gets stepped up basis. That is right out of the code [IRC §1014(b)(9)]. Unless a transfer is made in exchange for full consideration in money, the full value of property transferred to a life estate where the granter retains a life interest must be included in the estate at death [IRC §2036]. Thus, it receives full step up of basis under Section 1014(b)(9).