Mother's house gifted to kids

[Bees Knees]

The moral of the story is, when you put the kids name on the house, you keep mom and dad's name on the house as joint tenants (or retained life estate). When mom and dad die, the kids get full step up of basis. If mom and dad decide to sell the house before they die, simply remove the kids names before the sale, so mom and dad can exclude the gain on sale under Section 121. The only reason to get mom and dad's name off the title entirely is so they don't lose the house if mom and dad go into a nursing home and drain all of their money. However, I believe the rule is now 5 years for a gift rather than 3 years, so it is much more difficult to avoid having Medicaid take your house when mom and dad go into a nursing home.

[veritas]

The alternative moral

could be-if your attorney facillitated the transfer without getting tax advice,


Sue the attorney

[arlo]

Mothers House gifted to kids

Page 3-20 Says: Inherited property is taxable only if it is income in respect of decedent--
income that would have been included in the decendent's gross income if received before
death. My mother died in 2006 with an estate of only her home. It sold in 2007
for $25,000. If she sold the home when she was alive she would not have paid any taxes. I used the sale value as the step up fmv and showed no capital gain.
How much trouble am I in. arlo

[JenMO]

Sorry I did not enter into exchange. Got too busy. I know this has been hashed over many times. Kids were not going to sell house until Mom died because they hoped she would come home to live out her life. Life estate was intended, but not stated. Is there any documentation I could attach to use FMV for this situation?

[ProbateGeek]

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).

But the original post reflects a gift from mom to kids with no retained interest - how are you including this as part of mom's gross estate for estate tax purposes? I don't see the step-up on these facts.

Terry

Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. Nero Wolfe in The Red Box, by Rex Stout (Farrar & Rinehart, Inc., 1937).

[Bees Knees]

But the original post reflects a gift from mom to kids with no retained interest - how are you including this as part of mom's gross estate for estate tax purposes? I don't see the step-up on these facts.

The original post was not clear whether or not mom retained a life interest in the house.