Need Creative Ideas For Gifting Property
Scenario: Mom owns duplex which she bought for a $10 basis, Yes, ten dollars-from my grandmas estate. She wants to get asset out of her name. Property needs work to rehab and/or sell. Current tax appraisal value is $25k and rehab cost would be around $20K. Could probably sell for around $68K when rehabbed.
I would like to buy if from her at the $25K value and she has offered to let me use some of her other money around $15K to fix up and then sell or rent if I'd like. I would then repay her the 25K plus money used for rehab. I would then split any profit with her from sale. She can't get around much and doesn't know much about undertaking this kind of project. I guess neither do I but I have the time and am getting comfortable researching things to get the best deals and information.
How can she tranfer title or deed, whichever shows ownership , to me without me acquiring her basis of $10.00? A contract for deed would require me to pay her, which I can't , until I fix and sell the property. We would like to have the loan between us so that the sale wouldn't incur any additional assets in her name.
Any ideas how to accomplish this legally with creative accounting?
Anyone? I see a few people looking but no responses. :cry:
Please someone give me something to go on!
Why does she need the property out of her name before you use her 15k to rehab and sell?
I guess she really doesn't NEED to get it out of her name but she'd like to. She's getting old and sickly and this is really all she has. The house and about $20k in cash. If she were to need assistance with living arrangements we were told her assets would be taken from her but if gifted within three years of that time she would be able to recv some assistance. I would hold some of her money to help pay for other basic living expenses.
Check your information again. If you are talking about Medicaid assistance, then an individual's personal residence that is still occupied by family members is exempt from scrutiny.
Other assets, such as cash on hand, would have to be spent down, but it could be spent on fixing up the house.
There is also a lookback period for Medicaid. Right now it is three years. All transfers of assets up to three years prior to applying for assistance are subject to scrutiny. Spenddown requirements would still apply within this three year lookback window.
Best to transfer all assets into an irrevocable trust and out of the constructive control of the grantor. The trustee could use the income from the trust for the benefit of the grantor, but the assets can not be touched by Medicaid after three years has passed before applying for aid.
Consult an attorney experienced in elder-law for specific details.
Thanks Newkidintown! That's exactly the kind of information I needed.
The house is not her primary residence anymore because of the condition . So I guess within the three year period (look back) it still could be used for expense relating to SS statues. I spoke with an accountant today and he suggested she just gift me the property, I would then set up an account listed as separate property from husband and update my will to reflect the separate account to take care of my mom. I'd just worry about the gain when I sold it but the gain would be at 20% because it was a gift. I'll look into the irrevocable trust angle. Sounds cleaner than the accountants suggestion.
Thanks!
hand2print,
I think your accountant is giving you bad advice. Elder-law is not an accountant's field just as brain surgery is not a plumber's field. Consult an attorney whose practice emphasizes elder care issues, especially Medicaid planning.
I doubt any SS statutes apply here, so I have little confidence in your accountant's opinion. I would look for another accountant to do your work -- this one will not admit that he does not know something, but instead gives you misleading and most likely costly advice.
An outright gift is also subject to the lookback period. Additionally, it brings both Federal and State Gift Taxes into play. For example, in NC any gift or the aggregate of all lifetime gifts in excess of $100K is subject to NC state gift taxes even though the federal limit is much higher. Transfer to an irrevocable trust is a tax free event.
At your mother's death, the house gets a stepped up basis in the irrevocable trust; but, when you receive the house as an outright gift, your basis is whatever your mother's basis was at the time of the gift. Why pay capital gains taxes when you can avoid them?
Consult another accountant AND an elder-law attorney.