Gifting a House to a Grown Child

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JSparks
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Gifting a House to a Grown Child

Post by JSparks » Tue Aug 02, 2016 3:45 pm

I'm trying to offer some protection for my sister regarding her potential inheritance of my father's house and thought it might be helpful to post this question here. I've tried contacting a few elder care attorneys about this and have emailed them the information below. None will return my calls or reply to my email. I suspect they see the savings amount below and don't want to deal with a person with very little money.

Here are some details.

• My father lives in Maryland and is 75 years old.
• He has $13k in savings.
• He is currently healthy.
• He owes $25k on his house which was purchased in 1988 for $99k. Its present value is approximately $220k.
• My sister (healthy, 36 years old) still lives with my father and probably will for a very, very long time. She has no savings and I doubt she ever will.
• As of this past month, she has begun paying many of his monthly bills (including the mortgage) out of her own account.

My father's current will essentially indicates that all of his assets are to go to my sister upon his passing. I've asked him to give her everything since she is not in a good financial situation and I'm doing well enough that I don't want to take anything away from her.

The concern is that if my father were to go into nursing home for an extended stay and then pass away, that medical assistance would sue his estate. This would then force a sale of the house and my sister would have no place to live. The goal here is to protect the house so that my sister could possibly live a somewhat normal life when my father passes.

Would it make sense for him to gift the house to my sister now? If it's done now, he could certainly outlive the 5 year look-back but I'm not sure if there would be tax implications that would offset any advantage by doing this. In the event that he needed medical assistance within the 5 year look-back, perhaps then we would have to sell the house to cover any time in the care facility which would not be covered by medical assistance. This may be a worthwhile gamble but I don't know if any of this makes sense. I have no reason to think that he will pass away before the 5 year look-back period.

I just want to protect my sister. I don't want to discuss that her spendy life style is a huge problem. I've tried to talk to her about it and it just creates tears.

If there is any other information I can provide, please let me know.

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Watty
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Re: Gifting a House to a Grown Child

Post by Watty » Tue Aug 02, 2016 4:08 pm

It would be best to talk to a lawyer that specializes in Eldercare law in your state since a lot of the rules are state specific.

Three major problems with this are;

1) If he sold the house or left it to his estate then he would either get the homeowners capital gains exemption or it would go at a stepped up cost basis. Most likely not capital gains taxes would need to be paid. If he gives it to her then she will get his old cost basis and there could very likely be capital gains taxes when the house is eventually sold.

2) Your sister could then get a home equity loan or get sued and the house could be lost while you father is still alive. If you sister gets married and divorced then what happens to the house could be a mess.

3) The mortgage would need to be paid off in order to give her the house.

Carefreeap
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Re: Gifting a House to a Grown Child

Post by Carefreeap » Tue Aug 02, 2016 4:35 pm

A couple of observations;
There's no gift tax owed (on a Federal level) so long as your father files the correct form since the estate is worth less than $5M. You might want to double-check what the limits might be for the state he lives in.
You're gambling that he will not need care for the next five years.
Your sister is not living a "normal" life now. You will continue the enabling your father has allowed her. How will she be able to budget and pay for the inevitable repairs a house has?
FWIW my brother bought the family home from my parents. They bought in 1963 and "sold" to my brother in 1996 (basically he took over the payments as they had pulled about 90% of the equity out of the house). He continued their habit of pulling equity out of the house and finally lost it in 2009 after basically being in some state of foreclosure for at least 10 years. House would have been worth about $850k today if he had simply maintained it (did a bunch of weird "upgrades" that were never finished). Property taxes were $800/yr due to CA's Prop 13 :oops:

I do not get involved with my brother's finances. It's all I can do to not react when he says something like he's a great tenant because the landlord always gets more money because he pays late. :shock:

Your father's house is his money. Frankly if he needs help I'd be trying to get him in the best care you could using the assets he has. Depending on where you are located, getting into a Medicaid nursing facility may be a long wait. Your sister will figure out things when she has to.
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Longtermgrowth
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Re: Gifting a House to a Grown Child

Post by Longtermgrowth » Tue Aug 02, 2016 4:42 pm

I'm not sure how it would work in your state, but what about a deed of gift with reserved life estate? I believe there is a step up in basis at death and it bypasses probate... Definitely check with an attorney that knows your state laws.

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Doom&Gloom
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Re: Gifting a House to a Grown Child

Post by Doom&Gloom » Tue Aug 02, 2016 4:47 pm

Have you Googled this issue at all?

My wife and her mother went to visit an Elder Law attorney a few weeks ago to discuss similar issues. After their consultation, she asked me to try to find some info for her online. IIRC, there is some provision for the person's home to be excluded for Medicaid purposes if a relative (child only?) has lived with him for two (?) years. Your sister may qualify, and that would seem to be a far better option which would allow your father to keep the house in his name.

In any event, why would you expect an attorney to give you a free e-mail consultation? Make an appointment and take your father in to discuss his options. The fee for a consultation visit is likely to be very reasonable or waived entirely (as was my MIL's).

Hopefully someone more conversant with these things will chime in.

NotWhoYouThink
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Re: Gifting a House to a Grown Child

Post by NotWhoYouThink » Tue Aug 02, 2016 4:48 pm

It is your father's house. He paid for it, and the best use of it is to make sure he is cared for in his old age. If he needs to go into a nursing home, and he can get into a better one as a full pay resident because he can sell the house to fund his care, he should have that option. There are places that take Medicaid from day 1 and have short wait times, but you probably don't want him to be there.

It's great that you are willing to sacrifice your own inheritance to support your sister, but I don't think it's right to jeopardize your father's care to protect her right to to be a spendthrift.

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Watty
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Re: Gifting a House to a Grown Child

Post by Watty » Tue Aug 02, 2016 5:36 pm

One other problem would be that your dad would be limited to nursing homes that are accepting new medicaid patients. That could be pretty bleak or a long distance from his friends, relatives, and other people that might visit him. It would also likely limit his access to assistance in the home. He could also live another 20+ years when the home equity could be used to improve his quality of life.

hcj
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Re: Gifting a House to a Grown Child

Post by hcj » Tue Aug 02, 2016 7:01 pm

You might have better luck with the attorneys if you just made an appointment, instead of giving all the details over email. Just choose someone reputable and pay for a one hour consultation.

Katietsu
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Re: Gifting a House to a Grown Child

Post by Katietsu » Tue Aug 02, 2016 7:08 pm

1) You may be OK if you to do nothing. In PA, last time it was relevant in my extended family, anyway, a daughter that has lived with the parent for at least two years will be able to keep the house regardless of mediaid status.
2) If you do wish to proceed with gifting the house, I would make sure that your father retains a life estate. This will protect him both from your sister throwing him out as well as a creditor of your sister doing so.
3) The downside to receiving appreciated real estate as a gift vs receiving it as an inheritance, is that you forego the stepped up basis. In other words, if your sister would sell the house at some point in the future, she would owe more taxes if she had received it as a gift.
4) If she did inherit it with a mortgage in place, I believe federal law would protect her right to assume the mortgage.

Cheego
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Re: Gifting a House to a Grown Child

Post by Cheego » Wed Aug 03, 2016 8:29 am

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Re: Gifting a House to a Grown Child

Post by Cheego » Wed Aug 03, 2016 8:30 am

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Re: Gifting a House to a Grown Child

Post by Cheego » Wed Aug 03, 2016 8:32 am

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Watty
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Re: Gifting a House to a Grown Child

Post by Watty » Wed Aug 03, 2016 9:02 am

Cheego wrote:He doesn't want his house used for his care. He'd rather go into a state funded care facility and know that my sister has a house to live in.
Even if your plan works out like you think for a nursing home there could still be years before he needs a nursing home. If he lives another 20 years he could need a lot of financial help in that time before he qualifies to go into a nursing home.

Depending on the situation it is likely that you will feel pressure to pay for those once all of his other assets are gone so be prepared for that.

Cheego
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Re: Gifting a House to a Grown Child

Post by Cheego » Wed Aug 03, 2016 9:17 am

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Meg77
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Re: Gifting a House to a Grown Child

Post by Meg77 » Wed Aug 03, 2016 9:32 am

I don't think you need to worry about this issue, but making an appointment with a local attorney may put your mind at ease. Alternately, ask around at your church or work to find a referral to an attorney who may be willing to reassure you and explain the basics over coffee or lunch for no charge.

Homesteads below a certain value are usually protected when someone goes into a Medicaid nursing home, especially if a spouse or dependent still lives in the home. I assume the home value wasn't an issue when your mother spent time in a facility, so you have seen this first hand. I'm not sure of the exact rules, but whether you sister qualifies for that protection is your key question (as others have mentioned, if she's lived there for years she very well may, but due to her age and presumed lack of disability or dependent status, I'd want to make sure).
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Carefreeap
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Re: Gifting a House to a Grown Child

Post by Carefreeap » Wed Aug 03, 2016 10:00 am

Cheego wrote:
Carefreeap wrote:Your sister is not living a "normal" life now. You will continue the enabling your father has allowed her. How will she be able to budget and pay for the inevitable repairs a house has?

Your father's house is his money. Frankly if he needs help I'd be trying to get him in the best care you could using the assets he has. Depending on where you are located, getting into a Medicaid nursing facility may be a long wait. Your sister will figure out things when she has to.
To be clear, this is my father's wish/plan. Not mine. I am only trying to help him plan for what he is suggesting is best for him and her. He doesn't want his house used for medical care for himself. He would rather my sister have the house. She earns enough to cover house repairs, taxes, energy costs, etc.

Medicaid nursing care is not too bad in this area. My mom went through it two years ago before she passed away. She had no issues getting into a nearby facility at the time (of course, it may have changed since then or could change in the future) and she had special needs in her care.
Yeah, my father who is on Medicaid (Medi-Cal her in CA) thinks he's going to get away with off-loading his obligations to the State by having a Living Trust. A life estate IS an exempt asset here in CA but if there are any proceeds from the sale of the house when he dies I think share will be attached. I can already see that the County has filed a lien against him.

I'm fine with the government getting their share and grateful that there's a system that allows him close to free medical care. I'm especially grateful that he can maintain a semi-independent live-style and doesn't have to live with DH and me. :wink: I do think finding Medicaid accepting nursing care will be a problem for him since he lives in a HCOLA area. But we'll cross that bridge when we get there.
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mikec0206
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Re: Gifting a House to a Grown Child

Post by mikec0206 » Wed Aug 03, 2016 10:02 am

My grandmother works at a lawyers officer here in CT that specializes in estate planning. I can tell you how she handled her house.

Due to her health, she was also concerned about loosing the house if she were to go into a home at some point. In CT there was also a catch that an estate transfer within 5 years was still fair play for the state to go after if they were covering medical/nursing home expenses for her. So many years ago she started gifting it to my parents. She gifted each of them a percentage of the house each year (15k each or something), until the house was completely theirs. The percentage always stayed within the allowable gift amount each tax year. They've now owned the house for many years (but she legally has life use and lives in it to this day).

I might suggest that although you don't need any of the house, your father could still gift a percentage to you and a percentage to you sister each year that way he can give away more of the house each year and get the transaction done quicker (assuming you take the same route as my grandmother did).

Merely an example of what we've done - it could be different in your area but it might be a conversation starter with one of the lawyers that you meet with.

Also, you should definitely find a lawyer for them to talk to - usually estate lawyers aren't looking for crazy wealthy individuals as it's usually just an hourly rate for this type of stuff and it should be quick and easy for them to give you your options. They make their money simply on the number of these type of consultations they do.

GL

Longtermgrowth
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Re: Gifting a House to a Grown Child

Post by Longtermgrowth » Wed Aug 03, 2016 12:18 pm

These things probably vary by state. In my state, the two year window mentioned about a disabled or dependent child could also apply after a deed of gift if she is neither, but can prove that for those two years following the deed of gift that she has had to assist him in enough daily tasks to keep him in the home. If I remember correctly it would be at least three. Say he can't move without assistance, that would be one. Dressing might be two and feeding or showering might be three.

If she doesn't do the majority of at least three things for him like those, then the five year window would apply.

I believe there are advantages for both of them with a life estate deed over a regular deed of gift. Neither of their creditors can touch the home, even for medicaid purposes after a long enough period. After he passes away his life estate in the home is gone and there should be a step up in basis for her on that date. Someone correct me if I'm wrong, but I believe her basis for the home is whatever it's worth on the date of his passing if he held a life estate.

As far as gift taxes, the only extra cost is paying the tax preparer to file the extra paper work for that years taxes, unless he's already given well over 5 million to her (again, in my state at least).

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