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rated:
Info:
I've been having this discussion with my mother:  My grandparents have transferred their home title into her name.

Facts:
The house was bought for 80k in the 70s.  
Now worth around 200-250k ish.  

Questions:
Will she have to pay taxes on the difference from 80k to 250k?
What is the smartest way to transfer an asset like this.  Should there be a will or trust?  
The reasoning for moving the house into her name  "So that a nursing home couldn't come after the asset." 

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Am I naive to suggest that you use the asset to help cover medical and other costs? Why is the goal to surreptitiously p... (more)

MangoGT (May. 13, 2017 @ 12:03p) |

Yes you are naive. 
There are NO rules any more. It's all about what you can get away with.

These days only playing by the... (more)

kingdoodler88 (May. 13, 2017 @ 7:49p) |

It isn't like they always did this - it has only been for the last 10-15 years that some states (and it is a federal law... (more)

RedWolfe01 (May. 14, 2017 @ 2:19a) |

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rated:
1) Depends on the state

The other 2 questions are related.
You need to talk to a proper estate attorney. Otherwise Medicaid will get the house when they pass. It's not the 'nursing home' because you would have to pay them right there, it's most likely Medicaid (Depending on the state) who is paying with the assumption that the house will be sold to pay for it.

The reason, there are many ways that Medicaid can get the house if you DIY to try to move assets, they have look back, they also use the assets to determine qualification, and if done wrong, you lose it.

Talk to an attorney, it will cost you about $2k, but it's worth it if done right.

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The state is SC and the deed has been transferred for about 2-3 years.  grandparents are old and getting in bad shape.

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They SHOULD have filed a gift tax return, which wouldn't have had any tax due, but would have reduced the exemption on their estate taxes.

If she'd inherited it, her basis would have been stepped up to value at time of death.

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My grandparents are still living and the house was transferred a couple of years back. When you say gift tax return, is this option still availaible? 

Could you point me in the right direction on helping the situation. I don't mind reading up on it.

Thanks.

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Phenomix said:   My grandparents are still living and the house was transferred a couple of years back. When you say gift tax return, is this option still availaible? 

Could you point me in the right direction on helping the situation. I don't mind reading up on it.

Thanks.
 

  Dear OP, with this info shared so far and the informative answers provided by forbin4040 and taxmantoo, you definitely need to consult an attorney, from this point onwards. it definitely is a very wise investment in the form of fee paid to attorney

rated:
Phenomix said:   Info:
I've been having this discussion with my mother:  My grandparents have transferred their home title into her name.

Facts:
The house was bought for 80k in the 70s.  
Now worth around 200-250k ish.  

Questions:
Will she have to pay taxes on the difference from 80k to 250k?
What is the smartest way to transfer an asset like this.  Should there be a will or trust?  
The reasoning for moving the house into her name  "So that a nursing home couldn't come after the asset." 



So you are looking to cheat the tax payers, by putting them into a Medicaid nursing home, and not paying what they could pay....and you want help with that?

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Tax payers won't be cheated for long if they go to a Medicaid nursing home.

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Not sure where OP mentioned medicaid housing. Nor was I even aware of these types of rules... But....

OP looks like they're screwed: http://www.elderlawanswers.com/medicaids-asset-transfer-rules-12...

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Thanks, justignoredem. I'd heard the lookback period went from 3 years to 5 years but never bothered to look up the specifics.
Now the question is whether the old folks can take care of themselves for another 3 years, or if family can handle it until the five years are up.

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And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone

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justignoredem said:   Not sure where OP mentioned medicaid housing. Nor was I even aware of these types of rules... But....

OP looks like they're screwed: http://www.elderlawanswers.com/medicaids-asset-transfer-rules-12...

  OP said 'nursing home gets the house' that would imply the house is being used as some sort of collateral, and the only company I'm aware of that uses homes for collateral for nursing care is Medicaid.

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They have to sell the home if they enter the nursing home within the 5 year look back period

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A:

Congress has established a period of ineligibility for Medicaid (a “penalty period”) for those who transferred assets before applying. For transfers made prior to February 8, 2006, state Medicaid officials would look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after February 8, 2006, the so-called "look-back" period for all transfers is 60 months (five years).

While the look-back period determines whether a transfer will be penalized, the length of the penalty period depends on the amount transferred. For more on Medicaid’s asset transfer rules, click here.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid; and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.
http://www.elderlawanswers.com/how-to-deal-with-medicaids-five-y...

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ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
 

  

Why can't it be undone?
 

rated:
IANAL

10char

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ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
  It's not necessarily even a problem as long as one of the kids decides to use the home long enough to obtain the $500k exclusion.

rated:
Rajjeq said:   
ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
  It's not necessarily even a problem as long as one of the kids decides to use the home long enough to obtain the $500k exclusion.

  I think it's an issue of the lookback more than the gift tax.

rated:
Thanks for the information. I was genuinely curious about the situation. I don't directly benefit either way and I had a hunch that this was a bad move, just needed some confirmation and if there was a way to help.

@rascott I see reading comprehension isn't your strong suit. Defraud tax payers huh. Insightful.

rated:
forbin4040 said:   
Rajjeq said:   
ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
  It's not necessarily even a problem as long as one of the kids decides to use the home long enough to obtain the $500k exclusion.

  I think it's an issue of the lookback more than the gift tax.

  As far as the lookback period, is it really a problem?  When they review and see a $100k transfer 2 years ago, dont they just not pay for the first $100k of care expenses?  So those who received the $100k will have to return the money so that it can be used to pay those expenses?  If that's correct, isnt it a good bet to get the assets out of grandma's name now, with the understanding that if she ends up needing care before 5 years has passed the value will simply need to be returned?

rated:
Glitch99 said:   
forbin4040 said:   
Rajjeq said:   
ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
  It's not necessarily even a problem as long as one of the kids decides to use the home long enough to obtain the $500k exclusion.

  I think it's an issue of the lookback more than the gift tax.

  As far as the lookback period, is it really a problem?  When they review and see a $100k transfer 2 years ago, dont they just not pay for the first $100k of care expenses?  So those who received the $100k will have to return the money so that it can be used to pay those expenses?  If that's correct, isnt it a good bet to get the assets out of grandma's name now, with the understanding that if she ends up needing care before 5 years has passed the value will simply need to be returned?

  She is disqualified. That's about it.  Needs to wait until 5 years pass to apply again.
That's why it can't be undone.  And why I said see a lawyer.

rated:
From the previous elderlaw link, though there is no regulatory citation:

"Congress has created a very important escape hatch from the transfer penalty: the penalty will be "cured" if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned. However, some states are not permitting partial returns. Check with your elder law attorney."

So it appears it may be able to be undone (of course you would lose all of the attorney's fees and other problems if the home was used for collateral for a loan or something). So I don't know why one would just state 'That's why it can't be undone' when it may be able to, depending on the circumstances, encumbrances (if any) and state in which they reside. Too much at stake to guess and risk fouling something up with the cost of nursing home care between 5k and 10k per month - call a lawyer experienced in medicaid issues promptly.

rated:
forbin4040 said:   
Glitch99 said:   
forbin4040 said:   
Rajjeq said:   
ellory said:   And the parents made a costly mistake by gifting the house. No step up in basis. And it can't be undone
  It's not necessarily even a problem as long as one of the kids decides to use the home long enough to obtain the $500k exclusion.

  I think it's an issue of the lookback more than the gift tax.

  As far as the lookback period, is it really a problem?  When they review and see a $100k transfer 2 years ago, dont they just not pay for the first $100k of care expenses?  So those who received the $100k will have to return the money so that it can be used to pay those expenses?  If that's correct, isnt it a good bet to get the assets out of grandma's name now, with the understanding that if she ends up needing care before 5 years has passed the value will simply need to be returned?

  She is disqualified. That's about it.  Needs to wait until 5 years pass to apply again.
That's why it can't be undone.  And why I said see a lawyer.

  
Actually it is a clawback -- they can basically "undo" the transfer and force the liquidation if they WANT to.

This is why when I set up a house for my stepmother I gave her a Life Estate interest in the property and not a transfer.  It reverts back to me when she passes and it cannot be attached by medicaid if she ends up in a home.  (she used to WORK in a home so she is VERY resistant to ever ending up in one)  As far as a cursory look at the tax records go she owns the house and can claim homestead exemptions and is liable for the tax.  (I actually pay it and also claim it as a federal tax write off -- as well as the interest on the mortgage)  The bank had no problem with the transfer as a life interest since it does not affect their ability to foreclose.  We are both on the insurance even though I don't actually live there.  

rated:
Your grandparents may be better off staying at home or or selling the home and finding a small apartment and living semi-independantly if at all possible. It would probably be cheaper and your grandparents would probably be happier staying together in their own home. Most medicade nursing homes that would take them are not the most pleasant places.

Of course if you family is only interested in their assets and not their well being it would be easier to find anyplace that can feed and water them.

rated:
My grandparents are old school. They will not leave their home willingly. My mother lives 5mins from them, in the event that one them passes, the other will probably move in with her.  They're are currently ok. Their health is on the decline but they are still very active for 85 and 88.  My mother is notorious for bad financial decisions, I am the only in the family who cares about doing the most financially intelligent decision, even though it doesn't benefit me directly. I really look at from standpoint of my grandparents hard work/estate would be handled incorrectly, disappointing.

Lets say they could live another. 2-4 years.  Nursing home is unlikely.  So from here the cost basis would be from when my grandfather bought it  60-70k, when my mother  sells the home, she will pay the difference form 60k to 250k?

Is this correct? How would you guys have one it?

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Yes, your mom inherited the cost basis when your grandparents quit claim deeded it to her.

I guess she can move in there for 2 years to cut the potential cap gain tax when she want to sell it.

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Phenomix said:   Thanks for the information. I was genuinely curious about the situation. I don't directly benefit either way and I had a hunch that this was a bad move, just needed some confirmation and if there was a way to help.

@rascott I see reading comprehension isn't your strong suit. Defraud tax payers huh. Insightful.



When you are moving an asset out of their names so "the nursing home doesn't take it".....you are most certainly defrauding tax payers.

As you'd only do this to avoid the Medicaid nursing homes that force the sale to cover for their care....before taxpayers start paying for their care. There is no other explanation for what they've done.

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rascott said:   
Phenomix said:   Thanks for the information. I was genuinely curious about the situation. I don't directly benefit either way and I had a hunch that this was a bad move, just needed some confirmation and if there was a way to help.

@rascott I see reading comprehension isn't your strong suit. Defraud tax payers huh. Insightful.



When you are moving an asset out of their names so "the nursing home doesn't take it".....you are most certainly defrauding tax payers.

As you'd only do this to avoid the Medicaid nursing homes that force the sale to cover for their care....before taxpayers start paying for their care. There is no other explanation for what they've done.

  
Actually I consider it a rather unbalanced "tax."  Someone with a MM estate (or a decent house in the BA) contributes millions to the coffers while potentially losing a family home that has been in the family for generations, versus a person who rents or has a small 80K farm house...

Either medicare/medicaid covers the costs or they do not.  Charging person A) a "penalty" of literally millions while charging B) zero...  not very equitable.  Just because someone owns a house worth millions does not mean they have any liquid capital, and you can't exactly borrow money against it with no income.  

That all said I am fine with someone with no relatives left having their estate taken by the state.  (which may well include me, I have no kids)

rated:
rascott said:   
Phenomix said:   Thanks for the information. I was genuinely curious about the situation. I don't directly benefit either way and I had a hunch that this was a bad move, just needed some confirmation and if there was a way to help.

@rascott I see reading comprehension isn't your strong suit. Defraud tax payers huh. Insightful.



When you are moving an asset out of their names so "the nursing home doesn't take it".....you are most certainly defrauding tax payers.

As you'd only do this to avoid the Medicaid nursing homes that force the sale to cover for their care....before taxpayers start paying for their care. There is no other explanation for what they've done.

  He's entitled to take advantage of any legal loophole he can. Just as bankruptcy and avoiding taxes are ok if the law allows it. Don't you watch the news?
Why leave money on the table if you don't have to?
I say work the system before it works you.

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So if someone buys something at a discount because they found a 'coupon' in the paper, they should pay full price?

If someone sticks something in an IRA to get a lower tax bracket later, is that wrong?

This is a legit way to avoid Medicaid clawback, ASSUMING you know to do this properly and early enough.
It's not easy and fun to do though, it requires planning, just like a 401k or an IRA

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Am I naive to suggest that you use the asset to help cover medical and other costs? Why is the goal to surreptitiously pass the home down while relying on state funding to cover expected costs?

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MangoGT said:   Am I naive to suggest that you use the asset to help cover medical and other costs? Why is the goal to surreptitiously pass the home down while relying on state funding to cover expected costs?
Yes you are naive. 
There are NO rules any more. It's all about what you can get away with.

These days only playing by the rules, will only get you left behind.

rated:
MangoGT said:   Am I naive to suggest that you use the asset to help cover medical and other costs? Why is the goal to surreptitiously pass the home down while relying on state funding to cover expected costs?
  
It isn't like they always did this - it has only been for the last 10-15 years that some states (and it is a federal law but performed by the states) started seizing assets.   Apparently the change went into effect in 1993 but was rarely used.  Before that it was normal for the estate to go to the heirs.  Now the Heirs get to fight with the state.

Think about this from another side..  what about farmers whose family farm has always been passed down to children to work?  Well, that is covered by a clause called "undue hardship" on the survivors.  The state puts in a claim and the survivors have the burden of proof.  So again, why do only SOME get the burden and others do not?  

It is also very uneven as to which states are aggressive about the asset recovery process, as well.  In my case, I am the one that bought the property, and my elder stepmother is essentially a non-paying tenant.  I expect the state to try to take it if she ever goes into care, which is why she has a life estate only.  She only pays the utilities, so the state can keep its fingers out -- if I had not done so they would have been paying under Section 8 for years anyway.  (she was actually approved around the time I bought the place, but the cost was similar either way after her portion under Sec8 -- and I was going to be subsidizing that anyway)

Crib-notes from: http://www.nolo.com/legal-encyclopedia/how-medicaid-recovers-the...

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