Best Method to Inherit House

[azianbob]

My parents and I are considering how to set up their affairs. They own a townhome and want to leave it to me. I am an only child so there is no drama involved, its just to figure out the best method in terms of taxes.

I have been told there would be three options, but wanted to see if the BH community has any additional info.

1. Living Trust - property becomes mine once both parents pass, there is no tax (as long as under $11 million), and I get the step up basis (just for tax purposes when I sell the home, I would still pay property tax on their basis?). Also protected so if I get divorced my spouse would not be entitled to half of the home, and if I get sued people can not take the house. However, as long as they are alive the asset would be considered theres and they would not qualify for the long term nursing care of Medicare.

2. Transfer Deed - property becomes mine now, there is no tax (as long as under $11 million), but I inherit their basis of when they bought the house. However after 5 years, this frees them up to be covered by Medicare for long term nursing. But if I get divorced or sued I could lose the house.

3. Medicaid Asset Protection Trusts (MAPT) - Not too sure about this one.

Are one of these three the best option? The living trust seems like the best in terms of taxes from gains if I ever sell the home, but transferring or MAPT seems better to make sure they do not lose the home if they need long term care.

[bob60014]

Error

[inbox788]

What state are you in? TOD is the simplest.

This is for California new law:
https://www.edmundvincentlaw.com/blog/c ... eath-deeds

MAPT sounds complicated. Have to weight the costs and risks vs long term care.
https://nycprobatelawyer.com/the-5-ws-a ... on-trusts/

[RickBoglehead]

The best way to setup their affairs is by consulting an eldercare lawyer.

[BolderBoy]

What state are you in? TOD is the simplest.

+1.

If the townhome is owned free-and-clear then this is probably the simplest/cleanest way.

Google "transfer on death deed" and your state.

[bsteiner]

The best way to setup their affairs is by consulting an eldercare lawyer.

Or, if the principal issue is how best to provide for their child rather than how best to qualify for Medicaid, a trusts and estates lawyer.

What state are you in? ...

What state are they in? In most states, probably in trust for the original poster under their Wills. In a few states, such as California, probably in trust for the original poster under their revocable trust. In addition to what state they're in, it would be helpful to know the approximate size of their estates, and the likelihood that the original poster may have a small or large estate.

[azianbob]

We're in California. Their estate will be less than $2M, and that's including the house. It is completely paid off.

[LilyFleur]

#2 seems too good to be true. If they gift you the house, you aren't inheriting it.

I did the Transfer on Death deed for my children to inherit my home. I am wondering, though, if I should bite the bullet and do a trust and if there is a good reason to do so.

It's really hard to get rid of assets in order to make the government pay for nursing home care. And, many Bogleheads come down pretty hard on folks who would put their parents in a Medicare facility rather than private care in order to inherit more.

[muddlehead]

Wife and I live in Northern California. 2 kids. 50% 50% split. We have payable on death brokerage accounts. Payable on death bank checking account. Payable on death deed to our one house. We don't exceed any amount that would ever be "estate taxed". I think that's currently 8 million dollars. Because our lives our so simple - one marriage, no other children, 50/50 split of assets, payable on death stuff works best.

[junky6254]

It's really hard to get rid of assets in order to make the government pay for nursing home care. And, many Bogleheads come down pretty hard on folks who would put their parents in a Medicare facility rather than private care in order to inherit more.

I'm really curious on this one because my SO is in this situation. Land rich, cash poor people. We are fine, and will be fine.

[RickBoglehead]

Wife and I live in Northern California. 2 kids. 50% 50% split. We have payable on death brokerage accounts. Payable on death bank checking account. Payable on death deed to our one house. We don't exceed any amount that would ever be "estate taxed". I think that's currently 8 million dollars. Because our lives our so simple - one marriage, no other children, 50/50 split of assets, payable on death stuff works best.

I'll agree with your conclusion, but point out one issue.

Your deed to your house is transferable on death, no payable. And, you have two kids. So they will each inherit 50% of the house at the value on the day the last of you passes.

If kid #1 wants to sell and kid #2 doesn't want to, and kid #2 can't buy out kid #1 or doesn't want to, can kid #1 sell his/her 50% share to someone else? Not likely. So if they aren't in agreement, nothing happens.

We did this on our cottage, not yet on our house. We plan to sell both in the next 2 years and have it not matter, but will be thinking long and hard about how to title our retirement home, and whether or not to have a trust, based on the state we retire to.

[SuzBanyan]

Wife and I live in Northern California. 2 kids. 50% 50% split. We have payable on death brokerage accounts. Payable on death bank checking account. Payable on death deed to our one house. We don't exceed any amount that would ever be "estate taxed". I think that's currently 8 million dollars. Because our lives our so simple - one marriage, no other children, 50/50 split of assets, payable on death stuff works best.

I'll agree with your conclusion, but point out one issue.

Your deed to your house is transferable on death, no payable. And, you have two kids. So they will each inherit 50% of the house at the value on the day the last of you passes.

If kid #1 wants to sell and kid #2 doesn't want to, and kid #2 can't buy out kid #1 or doesn't want to, can kid #1 sell his/her 50% share to someone else? Not likely. So if they aren't in agreement, nothing happens.

We did this on our cottage, not yet on our house. We plan to sell both in the next 2 years and have it not matter, but will be thinking long and hard about how to title our retirement home, and whether or not to have a trust, based on the state we retire to.

With 2 children, you also need to think about whether 1 would like to continue to own the house after you pass, and benefit from your lower property tax under Prop 13. If both kids inherit after death, there is no increase in property taxes. However, if one kid then transfer his/her interest to the other, that half will be reassessed (no Prop 13 exemption for transfers between siblings) and property taxes are likely to substantially increase based on current fair market value.

[Ranunculus]

I inherited a property in CA through a Trust. The assessor's office requested a copy of the Trust and was thorough in evaluating my eligibility to maintain the low tax basis. You need to apply for exemption of reassessment upon inheriting the property, it is not automatic. An estate attorney will be very helpful in guiding you through the various options.

My mom was in assisted care for 5 years and more than half of the monthly cost was paid by rental income from her property. In most areas of California the rental market is very strong, it's worth considering as an alternative to transferring the property now. Board and care homes are a somewhat more affordable option than the large continuing care facilities and sometimes provide much better care.

You don't mention your parent's current health status, but that will be an important consideration in deciding the best course of action. If they currently have no evidence of dementia or chronic health problems they may not need long term nursing care.

[NotWhoYouThink]

Is the house suitable for aging in place? Is there room for a caregiver to stay if they need long term in-home care? Can they afford that? If the answer to all of the above questions is yes, then there is a stronger chance they might keep it long enough for you to inherit it. Otherwise, they'll probably need to sell it while they are still living.

If they die suddenly and young, you may inherit the house. I've heard that Transfer on Death deeds are now available in California. How much protection that would give you in the event of a divorce or a lawsuit would depend on a lot of things.

[delamer]

We're in California. Their estate will be less than $2M, and that's including the house. It is completely paid off.

How much is the house worth and what are their other assets?

Because if their net worth is nearly $2 million, they aren’t going to qualify for Medicaid (Medicare is not the correct program) anyway: https://www.agingcare.com/articles/asse ... 141681.htm

[CAsage]

I'll agree with your conclusion, but point out one issue. Your deed to your house is transferable on death, no payable. And, you have two kids. So they will each inherit 50% of the house at the value on the day the last of you passes.

If kid #1 wants to sell and kid #2 doesn't want to, and kid #2 can't buy out kid #1 or doesn't want to, can kid #1 sell his/her 50% share to someone else? Not likely. So if they aren't in agreement, nothing happens.

Kid #1 can take kid #2 to court to force a sale. One is not eternally bound or stuck in a shared house. Knowing that, Kid # 2 would probably work something out rather than end up having to sell anyway and losing money on legal fees.

[azianbob]

Well my mom is getting weaker, so living in a two story house (three if you include the garage) is becoming less and less a good idea. She's already fallen a couple times this year walking around. So far my parents have been against moving out to a one story condo or apartment, but I feel at this rate they will have to in 5 or so years.

I am not looking to grab their home, but just wanted to know the best options that will allow us to have the least expenses. The house is probably worth 1-1.2 M, and they have cash around 300k. They have joint SS of about $3300 a month. Even if we transfer the house to me, they would live in it as long as they want.

I haven't looked into long term care, but I know many senior apartments are based on asset and income, so they were considering gifting me most of their assets so later if they have to move in, it would be at a lower rate (past 5 years from transfer). I would still be around to care for them and support them for whatever they need. I could pay for their care out of pocket from the funds they gifted me or we could rent out the house and use it to pay for their expenses. In either case, they don't really speak a lot of English and are happy keeping all cash in checking type of people so I am looking to see how to arrange things so we can get the most and have to pay the least.

[delamer]

Well my mom is getting weaker, so living in a two story house (three if you include the garage) is becoming less and less a good idea. She's already fallen a couple times this year walking around. So far my parents have been against moving out to a one story condo or apartment, but I feel at this rate they will have to in 5 or so years.

I am not looking to grab their home, but just wanted to know the best options that will allow us to have the least expenses. The house is probably worth 1-1.2 M, and they have cash around 300k. They have joint SS of about $3300 a month. Even if we transfer the house to me, they would live in it as long as they want.

I haven't looked into long term care, but I know many senior apartments are based on asset and income, so they were considering gifting me most of their assets so later if they have to move in, it would be at a lower rate (past 5 years from transfer). I would still be around to care for them and support them for whatever they need. I could pay for their care out of pocket from the funds they gifted me or we could rent out the house and use it to pay for their expenses. In either case, they don't really speak a lot of English and are happy keeping all cash in checking type of people so I am looking to see how to arrange things so we can get the most and have to pay the least.

Medicaid is a federal program — although rules vary somewhat by state — that provides long-term care at nursing homes and/or assisted living facilities for indigent seniors with health problems. The 5-year look back applies to qualifying for that program.

Housing and other services for low income seniors living independently (not needing care in a facility) are administered at the local/state level. They aren’t available through the Medicaid program. If your parents want to qualify for those local services in the future, then you need to find out what their county/city’s regulations are for those programs.

In other words, setting up their finances to get Medicaid long term care benefits (if needed) wouldn’t necessarily qualify them for local assistance programs for independent seniors.

[muddlehead]

to rickboglehead and suzbanyan


Easy easy easy answer. My wife and I will be D E A D. If they can't figure it out, I/we don't care. Capiche?

[azianbob]

So a transfer on death deed works similar to a trust where once my parents pass the title will transfer to me and I will get the stepped up basis of FMV? Does that mean my property tax will go up from what my parents pay?

I'm assuming this wouldn't have the same legal protections of a trust but from a tax persepective will work the same?