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My parents (both 65) own a condo in their names outright valued at $180,000 (recent sale price for the condo across the hall in comparable condition). Purchased in 2003 for $200,000 (I gave my parents $40,000 for downpayment + $60,000 for mortgage payments over the years).

Objective: To shield this asset from end-of-life medical expenses or nursing-home costs. My parents can stay there as long as they want. I understand there is a 3 year "look back period" so I want to take care of this asap and probably should have started sooner, but the condo was only recently paid off so I don't have the flexibility I have now.

Plan: Move the condo into a LLC, own solely by me. Parents have no problem with this.

I searched on google and I come here regularly, but still don't know if this is the best way to handle this so I thought I will tap into the wisdom of all the knowledgeable people here.

Is my plan a good idea or not? Also, what will the cost base for me if I sell the property in the future? Will it be $0? or will it be $200,000? How will the capital gain be calculated?

Any advices or suggestions will be greatly appreciated!!

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This is exactly the kind of judgment we can pass after analyzing the facts and circumstances specific to the case at han... (more)

sesat (Mar. 21, 2013 @ 6:55p) |

As states continue to become more hard up for money, I have concerns. For instance, if they give the house to the daugh... (more)

BrodyInsurance (Mar. 21, 2013 @ 7:45p) |

Thanks for the discussion and suggestions so far. I talked to an elder estate planning attorney. A lot discussion points... (more)

FWFGirl (Mar. 27, 2013 @ 1:01p) |

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contact an estate planning lawyer in your state

I'm not an expert on the legal implications or medicaid, but I'm assuming there are no estate tax considerations (minimum of $5,250,000 federal, probably less for the state) so they could simply gift the house to you by filing a gift tax return with no tax effect for either of you.

Your basis depends on what you would sell it for. The rule is a little tricky for gifts but if you sold it for less than $180,000 then your basis would be $180k. If you sold it for over $200k your basis would be 200k. See http://www.irs.gov/publications/p551/ar02.html

Not an expert, but may want to research a land trust a little bit, to get it out of their name. I don't know the tax implications of this, though.

Thanks for the responses so far!
@Squeezer99, I do plan on talking to an estate planning lawyer, but I was hoping to learn as much as I can prior to that point.
@awstick, Gifting is an option, but I want to place the property into a separate entity to keep this asset apart from my other rental properties. I read most of the time LLC doesn't offer the protection from a lawsuit because the owner doesn't do a good job of separating everything to prove it is a separate entity. If I go to LLC route, I intend to never mixed the money, have dedicated and separate bank/credit cards accounts and clean books.
@aznshadoboy77, I looked into land trust as well and I don't like the fact they must be administered by a commercial trustees, such as a bank or trust company. You don't have total control over the property and you have to pay them to administered the trust.

Any other inputs would be much appreciated!

What state ?

FWFGirl said:   Also, what will the cost base for me if I sell the property in the future? Will it be $0? or will it be $200,000 ?
Have it assessed when you obtain it

Medicaid planning is state specific and fraught with minefields. Make sure you work with someone who has real experience.
Not all your parents assets are countable for Medicaid eligibility, and in some states transfers of those assets will not incur a lookback period. So, they may be able to transfer the home to any person or any entity without being subject to lookback.
Even though the asset is exempt, we don't want them retaining any interest in the asset at death, so as to subject that asset to Medicaid recovery.
They can gift you either the whole condo, or they can split it in time: they own it until they both die, after which you own it. If they gift you the whole asset now, you will inherit their cost basis, and they will use a portion of their unified death/transfer tax credit (asset valued on date of transfer). If they gift you the remainder interest and retain a life-estate, you will receive a step-up/step-down in basis, and use the portion of their unified credit at their death (asset valued on date of death).
Either way, if your state is like mine, the state will be precluded from recovering against the asset (in your hands) after your parents die.
As will all gifts, the question as to whether to make the transfer outright (to you in your own name) or to a trust (for your benefit) has to do with protecting the asset once it is in your hands. Receiving a gift in trust will give you the benefit of asset protection at the cost of some red tape.

Just ask them to gift the condo to you. One gift tax return and no headache with complex legal structures you don't understand.

Medicaid lookback periods are pretty much standardized across all states (since federal government is paying a good chunk of medicaid) and it is 5 years, not three years.

biomedeng said:   Medicaid lookback periods are pretty much standardized across all states
quite a few states (in some manner) exempt the home as long as the parents were living in it upon admission

Thanks for the additional feedback guys!

@Alcibiades, State is MA. From what I read, the exemption for the home is only for another spouse living in it:
"States generally exempt some amount of home equity from the eligibility requirement along with a few other basic assets, like a funeral plot, a burial plan, a limited amount of assets for the “community spouse,” or a spouse not requiring long-term care to live on." So its not totally shield this way and the protection will be gone once there is only 1 remaining person alive.

@Matr0skin, that is one option. However, as mentioned, I have other rental properties and I want to keep this asset separate for liability reasons. I do already have umbrella insurance, but I figured why place an additional asset into the bucket when its not really necessary (no mortgage etc).

@biomedeng, I also read transfer to certain trust, the look back is 5 years. Definitely a question for the attorney. And that is why I want to get this started asap.

@sesat, thanks for the good information. I also looked into what you described, I believe its call "special power of appointment clause in a deed, a homeowner not only retains control over who will ultimately own the home but also shields the home from potential Medicaid liens, starts the three-year Medicaid look-back clock ticking and eliminates the capital gains tax problem for the children." I can definitely see the advantage of step up/step down because I want to inherit at a cost basis as high as possible to lower the capital gain down the line.

Follow up question:
1. I really don't want to use a trust, and I wonder if I can gift the property to LLC with special power of appointment and have the same tax rules applied as to gift to individual?

2. Anyone have a referral for elder/estate planning lawyer for MA? None of my friends (as far as they will tell me) are doing this and all the attorney I worked with are in real estate or tax, not an experienced in estate planning. With that said, I would still see who they will recommend.

Thanks again!

Alcibiades said:   biomedeng said:   Medicaid lookback periods are pretty much standardized across all states
quite a few states (in some manner) exempt the home as long as the parents were living in it upon admission

As mentioned this is generally if the other spouse remains in the house. Another option is for the child to move into the parents house for 2 years and show that the fact they lived with the parent delayed their entry into a skilled nursing facility, then the house is exempt from medicaid.
The medicaid asset transfer rules and lookback periods have been tightened up in the last 10 years. Often what you hear from people are the tricks they used under more lenient, state-specific loopholes. An elder law attorney should be able to explain your options, but almost all will require the assets be repaid if medicaid is applied for in the next 5 years. As budgets become more tight, expect that the governments will get more aggressive at this. IMHO, from a financial standpoint of society, it makes little sense to have everyone else pay for your relatives skilled nursing care just so you can get an inheritance.

FWFGirl said:   My parents (both 65) own a condo in their names outright valued at $180,000 (recent sale price for the condo across the hall in comparable condition). Purchased in 2003 for $200,000 (I gave my parents $40,000 for downpayment + $60,000 for mortgage payments over the years).
I missed the fact you contributed significantly to the purchase of the house. If you are able to document this well, showing that it was not meant as a gift, but instead you were part owner of the house, then you can likely exclude the downpayment from being counted against medicaid. Not sure about the mortgage payments, if you count just principal and not interest. There are special rules for medicaid eligibility on joint assets--basically you cannot get away with calling an asset or account joint, if only one person contributed. However your case sounds different. Talk to a lawyer.

FWFGirl said:   
2. Anyone have a referral for elder/estate planning lawyer for MA? None of my friends (as far as they will tell me) are doing this and all the attorney I worked with are in real estate or tax, not an experienced in estate planning. With that said, I would still see who they will recommend.


NAELA

@biomedeng, regard to your comment, "IMHO, from a financial standpoint of society, it makes little sense to have everyone else pay for your relatives skilled nursing care just so you can get an inheritance."

I agree with you 100% in vacuum. However, many people with significantly more assets are doing asset protection and qualify for help (whether its senior housing or medical help etc). On the other hand, people never bother with retirement savings also qualify. So I just want to help my parents maintain as much control over their limited asset as possible. Its really not about getting back the money I put in. I would rather have them spend it all while they are still healthy.

@CSREwallet, thank you very much! Too bad they don't have any reviews. I guess its time to start to pick up the phone.

BTW, reached out to 2 real estate attorneys to see if they have any referrals or if they have experience in what I am trying to do.

biomedeng said:   Another option is for the child to move into the parents house for 2 years and show that the fact they lived with the parent delayed their entry into a skilled nursing facility, then the house is exempt from medicaidthat is a caveat I now remember

I asked an estate attorney on this type of arrangement a few years back. His opinion is that if you don't charge market rate rent then it's possible for Medicaid to get at it.

gain, consult a local estate attorney not real estate attorney.

ZenNUTS said:   I asked an estate attorney on this type of arrangement a few years back. His opinion is that if you don't charge market rate rent then it's possible for Medicaid to get at it.

gain, consult a local estate attorney not real estate attorney.


Not charging market rate rent is equivalent to a gift to the parents. For both parents, your annual allowance for tax-free gift is $28k (in 2013) so that should allow you to not charge them up to $2333/month rent. On a $180k property that should be plenty. Just look-up fair market rate in the area for this type of property but it should be fine.

Also, Medicaid look back period is 5 years now. It changed from 3 to 5 years in 2006 IIRC. But since all the rules are state-specific, make sure to consult the rules in your state, preferably with a local estate attorney.

Are you coming at this from the wrong angle? In other words are you focusing on preserving assets when you should be figuring out the best way to pay for care?

@BrodyInsurance, I think my focus is pretty clear, which is to shield the asset (within the law of course) and apply for Medicaid when the time comes.

@ZenNUTS, understood, reached out to 1 family planning and 1 estate planning attorney. The real estate one was just to get referrals.

My parents did a great job saving more than enough for a retirement at their current life style. I want them to spend all their savings, including the equity of the condo while they are still healthy. I am not trying to get my "share" back, what I gave them is theirs to keep. To them to enjoy, not for medical expenses.

Also, thanks for people who PM me with their strategy and ideas!

I am confused. If you aren't doing this for personal benefit, why are you shielding the asset? The main reason to do this is for personal benefit. Also, why are you choosing to shield the asset that is least likely to need to be shielded?

The point of my question in my previous response is that often people focus on medicaid planning because they don't really understand long term care planning. Qualifying for Medicaid isn't really what people want. Primarily this is because Medicaid pays for skilled nursing care, but the care that most people need is unskilled care. Nobody wants to be in a skilled care facility if it isn't a medical necessity. Be careful of allowing medicaid planning to turn it into a financial necessity.

@Brodyinsurance, what I meant was this is not for MY personal benefit, but it is for my parent's benefit. I don't want to see them spend a lifetime saving money and have it all go towards medical expenses at the end. Of course, I would be the getting the money at the end if there is any left over (but I put $100,000 in, so I am not "gaining" anything).

And you are right, I don't have a full grasp of Medicaid and that is why I am here to learn, as well as hiring someone to do the estate planning. If Medicaid is for skilled nursing care, then my thinking is correct. Because unskilled care is relatively cheap. In MA, skilled care cost can easily run >$10,000/month, so assistance here is needed. While unskilled non-overnight care is ~$2000 a month (I hired an unskilled home aide before), which we would have to pay either way.

I don't care that it is for your benefit, but don't you see that you are the only one who benefits? The first parent can qualify for Medicaid while the spouse is still in the house. The second spouse won't need the house if they are in a nursing home.

If you want the second spouse to be able to spend money, it is the assets that would otherwise be counted that you need to worry about. In other words, you need their cash to disappear and not their house.

I have no idea how you managed to pay only $2,000/month when unskilled care at home typically costs around $20/hour. https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate... Even at $15/hour, that is only about 4 hours a day of care. Custodial care can also take place in an assisted living facility. This looks to be about $5000/month in MA.

@Brodyinsurance, agreed, at the end of the day, its for my benefit.

I already thought about the cash aspect. It is easy to make cash disappeared, they will just have spend it all, which I encourage. You are right on for mainstream rates for unskilled care. However, if you hire minorities, they are much cheaper. These caregiver are usually legal residents and have no other skills, sometimes not even speak English. Usually you can just go to the local barber shop or community center, that is how I found such the caregiver. I have also seen people hiring nanny directly from oversea to be live in nanny for much cheaper rates. However, there is no such "discount" for skilled care.

BrodyInsurance said:   The point of my question in my previous response is that often people focus on medicaid planning because they don't really understand long term care planning. Qualifying for Medicaid isn't really what people want. Primarily this is because Medicaid pays for skilled nursing care, but the care that most people need is unskilled care. Nobody wants to be in a skilled care facility if it isn't a medical necessity. Be careful of allowing medicaid planning to turn it into a financial necessity.
I know I keep arguing with you on this, but having just gone another round with another older relative (house to nursing home) I can tell you that most people go quickly from caring for themselves to requiring significant round-the-clock care. The idea that you needed LTC insurance to pay for 4 hours a day of help is nice, but I have not personally seen a situation where it would be helpful beyond a few months. My relatives have all tried to manage on their own to the point at which they were routinely needing to call 911 and have extended hospital stays. So there was a time where small amounts of help would have been good, but they didn't want it or family was able to provide it. Then suddenly, generally as a result of a crisis, more continuous care was required, be it unskilled or skilled. Sure no one wants a nursing home, but sometimes it is the best option, and it is certainly cheaper than 24/7 unskilled care at home. And often once you are to the 24/7 care level, you do need a bit of skilled care mixed in.

I didn't say a word about long term care insurance. Almost nobody can afford around the clock care. We want what is best for our family members. This is not a nursing home if they don't need skilled care. People need to figure out how to pay for care. Medicaid, in general, is only helpful for skilled care.

FWFGirl said:   @Brodyinsurance, agreed, at the end of the day, its for my benefit.

I already thought about the cash aspect. It is easy to make cash disappeared, they will just have spend it all, which I encourage. You are right on for mainstream rates for unskilled care. However, if you hire minorities, they are much cheaper. These caregiver are usually legal residents and have no other skills, sometimes not even speak English. Usually you can just go to the local barber shop or community center, that is how I found such the caregiver. I have also seen people hiring nanny directly from oversea to be live in nanny for much cheaper rates. However, there is no such "discount" for skilled care.



As long as it is being done for your benefit, it makes sense.
With the house, I think that you may need to plan on charging them rent at least through the look back period. Otherwise, they have given you a "gift" in exchange for a "gift" of free housing. A gift exchanged for a gift doesn't qualify as a gift. There are probably alternative ways to structure it.

Brody, in California, a transfer of an asset that [in itself] is exempt from the Medicaid eligibility analysis, is also exempt from clawback during the "lookback period". I don't know what it is like in your state, or in fwgirls state, but this further reinforces the fact that Medicaid is not administered in a uniform manner.

My point is that there may be no need to charge the parents rent, as there is no harm in making gratuitous gifts of exempt assets.

With non-exempt assets... Medicaid planning, like special needs planning, is not necessarily exclusively for the named beneficiaries benefit. Any assets that are not liquidated to pay for care that can otherwise be paid for by means-tested benefits instead can be used to pay for those expenses that are not covered by means-tested benefits. (sorry for the poor sentence structure, English is my third language) There are many expenses that are not covered by Medicaid/SSI. If it were not for advanced planning, funds that could be used for these supplemental expenses will instead by exhausted by core expenses. So, I don't think is fair to make the OP admit that all this planning is for her exclusive benefit. Fair or not, it does not seem relevant either.

I think what you are trying to allude to is the fact that OP will most likely have to liquidate the condo to pay for her parents Assisted Living Facility or other in-home caregivers, before they get placed in a SNF. Let us assume this will be the case. Apart from blowing up $200k of their unified credit ($400k round trip), there is no downside to them engaging in this planning. Worst case parents gift condo to kid, kid sells and pays cap gains tax, and kid gifts remainder back to parents to pay for ALF. Let us assume the opposite: the parents go straight to SNF/grave. In that case, the condo remains intact.

That sounds like a good deal. It isn't as good as "heads you win, tails you win", but it is "heads you win, tails you draw". [pretty sweet] Please tell me what I'm missing.

sesat said:   Worst case parents gift condo to kid, kid sells and pays cap gains taxthat is why you have it assessed at the time of the transfer or gifting

Alcibiades said:   sesat said:   Worst case parents gift condo to kid, kid sells and pays cap gains taxthat is why you have it assessed at the time of the transfer or gifting

This is exactly the kind of judgment we can pass after analyzing the facts and circumstances specific to the case at hand. This is not a general rule of thumb that can be applied without such analysis.

In this case, the parents purchased the condo for $200k and it is now worth $180k, so if OP was to receive a gift that she had to turn around and liquidate she would have a net capital loss of $20k, $3k of which she can deduct against her ordinary income for this year.

If OP's parents had instead bought beachfront property in Santa Barbara for $100k 35 years ago, and it was now worth $5M we would want it to be included in OP's parents estate so that OP can get a step up in basis.

If OP's parents had instead bought a house+ranch in Martha's Vineyard for $10M and it is now worth $100M, we would have to take into account the choice of paying capital gains vs estate/transfer tax, and either make certain assumptions about longevity and asset appreciation or to incorporate actuarial math into our financial models.

Someone in this thread suggestion "just have them gift it to you". As you can see, if the situation was akin to Santa Barbara scenario I described, that type of suggestion would certainly lead a practitioner to a professional-liability malpractice claim.

Brody, in California, a transfer of an asset that [in itself] is exempt from the Medicaid eligibility analysis, is also exempt from clawback during the "lookback period". I don't know what it is like in your state, or in fwgirls state, but this further reinforces the fact that Medicaid is not administered in a uniform manner.

My point is that there may be no need to charge the parents rent, as there is no harm in making gratuitous gifts of exempt assets.


Let me try this again because I think that I failed to make myself clear. By the way, you are making an excellent point and I completely agree with your first paragraph above. My concern is with the second paragraph. Look at what you said earlier in the thread:

"Even though the asset is exempt, we don't want them retaining any interest in the asset at death, so as to subject that asset to Medicaid recovery."

A gratuitous gift of an exempt asset is fine. The problem is that a gift in which one is expected to give a gift in return may not be treated as a gift. In other words, gifting the house is fine, but gifting the house in exchange for free rent and maintenance may not necessarily be treated as a gift. My concern isn't whether it is clawed back for Medicaid asset purposes. My concern is that if it isn't treated as a gift, it could be treated as part of her parents estate at death and Medicaid recovery could be an issue.

With non-exempt assets... Medicaid planning, like special needs planning, is not necessarily exclusively for the named beneficiaries benefit. Any assets that are not liquidated to pay for care that can otherwise be paid for by means-tested benefits instead can be used to pay for those expenses that are not covered by means-tested benefits. (sorry for the poor sentence structure, English is my third language) There are many expenses that are not covered by Medicaid/SSI. If it were not for advanced planning, funds that could be used for these supplemental expenses will instead by exhausted by core expenses. So, I don't think is fair to make the OP admit that all this planning is for her exclusive benefit. Fair or not, it does not seem relevant either.

You are correct again. Although much of it is for the beneficiary's benefit and in this case the house is for her benefit, there is some planning that is certainly done for the other spouse's benefit. For instance, it sometimes makes sense to turn assets into income. When I was saying that it was for her benefit, let me be clear that in no way was that meant to be negative. If parents can do planning that will help their loved ones and not have a negative impact on themselves, I have no problem at all with doing it.

I think what you are trying to allude to is the fact that OP will most likely have to liquidate the condo to pay for her parents Assisted Living Facility or other in-home caregivers, before they get placed in a SNF. Let us assume this will be the case. Apart from blowing up $200k of their unified credit ($400k round trip), there is no downside to them engaging in this planning. Worst case parents gift condo to kid, kid sells and pays cap gains tax, and kid gifts remainder back to parents to pay for ALF. Let us assume the opposite: the parents go straight to SNF/grave. In that case, the condo remains intact.

You're in the right neighborhood in terms of my thought process. It's not so much that the OP will need this instead of that. Rather, it is more of a general commentary about long term care. The only thing that will pay for long term care is cash. It can be cash from the bank or cash from an insurance policy or cash from the government. In planning, since one doesn't know if they will need care or what type of care that they will need, they need to look at the big picture. The government cash (medicaid) comes with government rules and government strings so one just needs to be aware of how it works. Too often, I see people focus on Medicaid planning instead of focusing on how to help the person get the care that they need if it is needed. Sometimes, those two things are the same. Often, they are not.

That sounds like a good deal. It isn't as good as "heads you win, tails you win", but it is "heads you win, tails you draw". [pretty sweet] Please tell me what I'm missing.

As states continue to become more hard up for money, I have concerns. For instance, if they give the house to the daughter, and then the daughter uses that same asset pay for their care, it doesn't pass the smell test of being a gift. It is possible that it could be treated as an asset. Keep in mind, if we are talking about the second spouse, it is no longer exempt.

Thanks for the discussion and suggestions so far. I talked to an elder estate planning attorney. A lot discussion points covered here were mentioned, the attorney just tied it all together. And obviously, IANAL so this is just for discussion purpose only:

Normally, the easiest way would be just to deed the property to me. Since the value is not high enough to worry about estate tax. However, since I have other rental properties, a trust is a better way to go.

She suggested placing the property in a trust (its better than LLC mainly because in MA, trust is the proved way to do this kind of asset protection). This trust will start the 5 yr look back clock. And as long as both parents don't get sick within the 5 yr period, then we are good to go. One important key is, all property related expenses, (HOA, tax, insurance) have to trace back to me, not them. Otherwise, you risk re-setting the 5 yr look back. Also, I don't have to collect rent from them.

I am going to talk to a different estate planning attorney to double check the strategy and cost.



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