mom wants to "sell" me her condo for estate planning

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Jack FFR1846
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mom wants to "sell" me her condo for estate planning

Post by Jack FFR1846 »

My mom is being very practical about when....as she says....she gets hit by a bus or something.

She sent me an email saying that she wants to sell me her condo, for zero so that it would not have to go through probate (Mass, if that helps). As she puts it, it's her only asset in Mass. She's a partial snowbird with a place in Florida. My sister lives in Florida, so she's "selling" my sister the house down there.

My first thought was that I am not a lawyer, although I was once accepted at Suffolk Law School. I don't know the ramifications of this beyond having to add another residence onto my umbrella. I'm also not all that sure that she'd go first (I have a couple big health conditions and her mother lived for about 900 years).

My inclination is to say no. I expect the place is worth about $100k and I don't need the money.

Anything I should know here?
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dodecahedron
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Re: mom wants to "sell" me her condo for estate planning

Post by dodecahedron »

A few ramifications that occur to me off the top of my head:

1) By giving you the home during her lifetime, you acquire her basis in the home, which could be quite difficult to compute down the road. (Her basis is not necessarily what she paid for the home plus improvements. Under prior tax law, she might have rolled forward capital gains on prior homes into this one. Also, if the home was previously owned under a joint ownership arrangement with a late husband, then the half the basis would have stepped up at his death.) Anyway, it can get quite complicated. If she simply leaves you the house after her death, the basis steps up to the value at the time of her death, which is much simpler and likely to result in lower capital gains taxes for you.

2) If she remains the owner of the home, she may quality for senior citizen property tax breaks which might no longer be the case if you are the legal owner, especially if you are not living in the home.

3) There are potential gift tax issues and if she continues to occupy the home after deeding it over to you, she may need to pay you rent.

4) Homeowners' insurance could be problematic if you are the legal owner but not actually living in the home.

All in all, I think the wisest course of action is to graciously decline the gift.
chead
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Re: mom wants to "sell" me her condo for estate planning

Post by chead »

In case it wasn't clear from dodecahedron's comment, in the eyes of the IRS, she would be gifting you the house and not selling it to you.

You would technically be responsible for any maintenance or capital improvements to the condo. This one time transaction may result in multiple future financial "negotiations" you might have to have in the future. May not be a big deal, but something I do my best to avoid with my family.

I'm not estate planning expert, but before telling her no, I would do a little more research to figure out if there wasn't a much simpler way to accomplish the same goal. I would be surprised if there wasn't.
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Watty
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Re: mom wants to "sell" me her condo for estate planning

Post by Watty »

Another potential problem is that you could die before her or you could get divorced and having the condo in your name would make things a lot more complicated. She could also get married and then want her assets be left for support here new husband when she dies.

Who pays for the property tax and condo fees could also be a sticky situation.

Some condos also have limitations on being able to rent out the condo, or higher fees for non-owner occupied units. This is because it can make it more difficult to get a mortgage when a high percentage of the units are rented and that could make the condos more difficult to sell.
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pteam
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Re: mom wants to "sell" me her condo for estate planning

Post by pteam »

You should take the house. Maybe have her sell it to you for $1 or something. My father in law's mother just had to sell her house and all her assets to pay for her nursing home costs and it has essentially spent all of her assets down to nothing included what was a paid off home. If the home was in your name or at least you were on the title the home could have passed to you instead of the money being spent.
music_man
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Re: mom wants to "sell" me her condo for estate planning

Post by music_man »

What about if she re-titles the property with both of your names as joint tenancy? You both become equal owners of the house and then it passes to you in entirety upon her death and avoids probate.
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bottlecap
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Re: mom wants to "sell" me her condo for estate planning

Post by bottlecap »

The big issue with all of this is gift taxes.
sscritic
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Re: mom wants to "sell" me her condo for estate planning

Post by sscritic »

Not if she doesn't have another 5 million or so to leave when she dies, and even if she does, the house values will be included either then or now. Give away $10 million today and die penniless or die with $10 million left to the same persons, the unified estate and gift tax will end up being the same (although tax rates do change). Now there may be plenty of nuances I am missing (like you file a 706 for one and a 709 for the other), but the concept of unified means there is really only one tax and it is the same either way.
The estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax, imposes a tax on transfers of property during a person's life; the gift tax prevents avoidance of the estate tax should a person want to give away his/her estate.
In estate planning, you also must consider the unified credit. It gets its name because the federal gift tax and estate tax are integrated into one unified tax system.

This is the credit for the portion of estate tax due on taxable estates. For example, if you exceed the annual gift tax exclusion amount in any year, you can either pay the tax on the excess or take advantage of the unified credit to avoid paying the tax. The unified credit enables you to give away $5 million (plus the annual inflation adjustments) during your lifetime without having to pay gift tax.

By using the unified credit during your life, you'll reduce the amount available to offset the estate tax upon your death. If, however, you pay the gift tax, such taxed gifts are added back to your estate, and the estate tax is recalculated, with the gift taxes you previously paid credited against any final estate tax due.
Professor Emeritus
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Re: mom wants to "sell" me her condo for estate planning

Post by Professor Emeritus »

pteam wrote:You should take the house. Maybe have her sell it to you for $1 or something. My father in law's mother just had to sell her house and all her assets to pay for her nursing home costs and it has essentially spent all of her assets down to nothing included what was a paid off home. If the home was in your name or at least you were on the title the home could have passed to you instead of the money being spent.

Not with out a very long waiting period

Any amount that is given to another person triggers a 5-year waiting period, which basically means that the amount of the gift, whether it is $10 or $100,000, carries with it a 5-year look-back period. The donor will not be qualified for Medicaid benefits until either the 5 years lapses or all of the funds transferred are utilized for the benefit of the donor. There is no minimum gift threshold that doesn’t trigger the look back, and some states even question and disqualify Christmas, anniversary, and birthday gifts.

http://bwlaw.blogs.com/estate_planning_ ... dmedicare/
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heartwood
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Re: mom wants to "sell" me her condo for estate planning

Post by heartwood »

would a revocable trust be useful? She establishes a "Mom's Massachusetts Revocable Trust." The condo gets retitled into the name of the trust. She remains owner of the trust perhaps with you as co-trustee or subsequent trustee. I think that takes care of the gift tax issue and allows you to act if she is unable to do so. Depending upon the details of the trust it could allow for several eventualities. The trust could then own the insurance, pay the HOA fees, etc.
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bottlecap
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Re: mom wants to "sell" me her condo for estate planning

Post by bottlecap »

sscritic wrote:Not if she doesn't have another 5 million or so to leave when she dies
Yeah, that's true. I guess losing the step up in basis is the the concern, then.

JT
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Re: mom wants to "sell" me her condo for estate planning

Post by richard »

Irrevocable trusts seem popular for this purpose. Avoids probate, starts the five-year Medicaid clock, preserves the step up in basis at death, allows her to live there rent free for life, etc.

No real downside except set up costs (primarily lawyers' fees), as I understand it.
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Re: mom wants to "sell" me her condo for estate planning

Post by KyleAAA »

How desirable is avoiding probate in this situation? Are there any real advantages? In my experience people tend to get irrationally fixated on things like that. If she's worried about medicare taking everything, fine, but even that doesn't seem worth the effort to me.
Last edited by KyleAAA on Sun Jul 13, 2014 11:50 am, edited 2 times in total.
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matjen
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Re: mom wants to "sell" me her condo for estate planning

Post by matjen »

Research QPRTs. I think that is what you are looking for if she has a big estate.
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Re: mom wants to "sell" me her condo for estate planning

Post by tibbitts »

pteam wrote:You should take the house. Maybe have her sell it to you for $1 or something. My father in law's mother just had to sell her house and all her assets to pay for her nursing home costs and it has essentially spent all of her assets down to nothing included what was a paid off home. If the home was in your name or at least you were on the title the home could have passed to you instead of the money being spent.
Re-titling the home, even without considering the look-back period, might have opened her up to various kinds of liability. So it's not a clear win. And frankly, not all seniors want to give up control of their home, even to close relatives.

As for "instead of the money being spent": the same amount of money would still have been spent for nursing home care; it's just a matter of where the money would have come from.
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pteam
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Re: mom wants to "sell" me her condo for estate planning

Post by pteam »

tibbitts wrote:
pteam wrote:You should take the house. Maybe have her sell it to you for $1 or something. My father in law's mother just had to sell her house and all her assets to pay for her nursing home costs and it has essentially spent all of her assets down to nothing included what was a paid off home. If the home was in your name or at least you were on the title the home could have passed to you instead of the money being spent.
Re-titling the home, even without considering the look-back period, might have opened her up to various kinds of liability. So it's not a clear win. And frankly, not all seniors want to give up control of their home, even to close relatives.

As for "instead of the money being spent": the same amount of money would still have been spent for nursing home care; it's just a matter of where the money would have come from.
No the same money would not have been spent. She has had to sell her house and pay for the nursing home from the proceeds. Once her money runs out the government pays for the nursing home. Had she have listened to my father-in-law and put the home In their name or gifted it to them which was plenty more than 5 years in between, they wouldn't have had to sell the house at all and it would have been left for the family paid off free and clear. Without the money from the house the government would have taken over the nursing home payments and the house would have been left to the family cause it would have been in their name.
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Re: mom wants to "sell" me her condo for estate planning

Post by Professor Emeritus »

pteam wrote:
tibbitts wrote:
pteam wrote:You should take the house. Maybe have her sell it to you for $1 or something. My father in law's mother just had to sell her house and all her assets to pay for her nursing home costs and it has essentially spent all of her assets down to nothing included what was a paid off home. If the home was in your name or at least you were on the title the home could have passed to you instead of the money being spent.
Re-titling the home, even without considering the look-back period, might have opened her up to various kinds of liability. So it's not a clear win. And frankly, not all seniors want to give up control of their home, even to close relatives.

As for "instead of the money being spent": the same amount of money would still have been spent for nursing home care; it's just a matter of where the money would have come from.
No the same money would not have been spent. She has had to sell her house and pay for the nursing home from the proceeds. Once her money runs out the government pays for the nursing home. Had she have listened to my father-in-law and put the home In their name or gifted it to them which was plenty more than 5 years in between, they wouldn't have had to sell the house at all and it would have been left for the family paid off free and clear. Without the money from the house the government would have taken over the nursing home payments and the house would have been left to the family cause it would have been in their name.
You are missing the point . You simply want taxpayers to pay.
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Re: mom wants to "sell" me her condo for estate planning

Post by jebmke »

Professor Emeritus wrote:
You are missing the point . You simply want taxpayers to pay.
\
Bingo!
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: mom wants to "sell" me her condo for estate planning

Post by LadyGeek »

Please stay on-topic. Opinions of taxpayer support are off-topic.

We're straying into a discussion about the Medicaid 5-year lookback period, some background info is here: How Can I Safely Transfer My Assets to Get Medicaid to Pay for Long-Term Care?

The OP is asking how to avoid probate of a property. Let's stay focused on that aspect.

Update: Post corrected, see below.
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Re: mom wants to "sell" me her condo for estate planning

Post by TheGreyingDuke »

LadyGeek wrote:We're straying into a discussion about the Medicare 5-year lookback period, some background info is here: How Can I Safely Transfer My Assets to Get Medicaid to Pay for Long-Term Care?
Just to keep it clear, we are talking about Medicaid lookback, Medicare has no such mechanism
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Re: mom wants to "sell" me her condo for estate planning

Post by LadyGeek »

Thanks, I fixed my post.
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Re: mom wants to "sell" me her condo for estate planning

Post by FoolStreet »

We did this with FIL and it has largely worked out so far. FIL sold it for market value and gave a gift of equity for the difference between the loan and the market value. He had no other asserts to speak of and was going to foreclose anyway. His options at the time were to sell on open market and use the equity to buy a small condo (but HOA would be prohibitive) or rent. At the time this was a preferable option than a reverse mortgage. It has passed 7 year look back. We rent rooms out to (just) cover the mortgage. He likes that because it gives him company and it allows him to stay in the house he grew up in. I don't think there was enough equity and as a 52 year old at the time, the terms did not seem very exciting sure to relatively young age.

Now as health and finances erodes, it is nice to know he doesn't have to worry about creditors.

If his health erodes to a point where additional funds are needed, we have the house to draw on. However, I don't know how to deal with that or what constitutes reason for pulling from equity or how to manage the debt service of a HELOC should it start being tapped, with risk of snowballing. Well, better to have that house and deal with that problem, than have the problem without the house.

Upon sale, we'll most likely take out our cash in, minus expenses, cap gain taxes, then split remaining with siblings. Its hard to think about and too many variables to be able to commit that in writing.
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Re: mom wants to "sell" me her condo for estate planning

Post by WhyNotUs »

As sscritic noted if the total assets are likely to be less than the estate tax exclusion, just make sure to file gift tax form with 2014 taxes, 709 most likely, and use a documented, independent basis for setting the value and date.

Some people will hire an appraiser and others will use the assessed value. Either way you have a piece of paper on file that is independent value based on the time of transfer.
I have also heard of people asking a realtor do a market assessment to document value and do not have an opinion of that.

As others have noted, those who do this to make someone a eligible for medicaid is troubling. I save to maintain my financial independence and thus reduce my burden to others rather than to transfer some wealth to my heirs at the expense of the general public. YMMV.
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heartwood
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Re: mom wants to "sell" me her condo for estate planning

Post by heartwood »

Jack FFR1846 wrote:My mom is being very practical about when....as she says....she gets hit by a bus or something.

She sent me an email saying that she wants to sell me her condo, for zero so that it would not have to go through probate (Mass, if that helps). As she puts it, it's her only asset in Mass. She's a partial snowbird with a place in Florida. My sister lives in Florida, so she's "selling" my sister the house down there.

My first thought was that I am not a lawyer, although I was once accepted at Suffolk Law School. I don't know the ramifications of this beyond having to add another residence onto my umbrella. I'm also not all that sure that she'd go first (I have a couple big health conditions and her mother lived for about 900 years).

My inclination is to say no. I expect the place is worth about $100k and I don't need the money.

Anything I should know here?
It's interesting to note how far this thread has moved from the OP's question. It asks about avoiding probate on a small estate and anything else he should know. The latest posts focus on the ethics of arranging affairs to qualify for medicade.

I hope the OP got what he needed from his original question and the responses before the hijacking into social issues.
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