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  1. #1
    Join Date
    Aug 2017
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    Default Should Elderly Parents Gift the House to Me

    My question involves estate proceedings in the state of: connecticut

    Hello
    My mother and father have recently moved into an assisted living facility, they are in their upper 80s. Their long term health care policies will cover the cost of assisted living for the next 6 years and, after that, they have significant assets in a retirement account, which generates some yearly income.
    They also have a residence which is vacant now. The want to give me the house. I am the only heir.
    I would need to put some money into renovating the house before I move in, but I am hesitant to do so since the house is not in my name.

    I spoke to a lawyer he suggested that my parents should gift the house to me. The risk for them is that if they do gift the house they could not apply for medicaide for 5 years, but since they are covered by LT insurance for 6 years, and beyond that they have significant assets, it is a favorable situation. Also I don't plan to sell the house so no issue there. Are there any other possible pitfalls?
    Looking for a second opinion from this group. Thanks!

  2. #2
    Join Date
    Jan 2019
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    Pugetopolis
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    Default Re: Should Elderly Parents Gift the House to Me

    Sounds reasonable

  3. #3
    Join Date
    Mar 2013
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    17,603

    Default Re: Should Elderly Parents Gift the House to Me

    Quote Quoting kaktus
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    I spoke to a lawyer he suggested that my parents should gift the house to me. The risk for them is that if they do gift the house they could not apply for medicaide for 5 years, but since they are covered by LT insurance for 6 years, and beyond that they have significant assets, it is a favorable situation. Also I don't plan to sell the house so no issue there. Are there any other possible pitfalls?
    You don't "plan" to sell, but you can't predict what might happen years down the line so one possible pitfall to understand is the tax issue.

    If they give you the house and you someday sell it, your basis for the taxable gain is what they originally paid for it (plus or minus whatever). If you inherit it, your basis is the fair market value at the time you inherit.

    For this example I assume they have owned the house for 20 years and paid $200,000 for it. If you sell it 10 years from now for $1,000,000 your taxable gain is $800,000 less the $250,000 exclusion if you reside in it long enough ($500,000 if married).

    If you inherit the house 10 years from now and sell it for $1,000,000 (its then fair market value) the basis is $1,000,000 and there is no taxable gain.

    Above is overly simplified of course and figures may change for a variety of reasons but you get the idea. You can put in your own figures. You can also read IRS publication 523 Sale of Home.

    https://www.irs.gov/pub/irs-pdf/p523.pdf

    Decide once you have considered the tax aspect.

  4. #4
    Join Date
    Mar 2012
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    Default Re: Should Elderly Parents Gift the House to Me

    Quote Quoting kaktus
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    The want to give me the house. I am the only heir.
    I would need to put some money into renovating the house before I move in, but I am hesitant to do so since the house is not in my name.
    This makes me think they don't want to give it to you now, or they'd have already done it, and you'd be remodeling it. Take a leap of faith here. If they really want to give it to (now or later), spend the money on the remodel, and if they change their mind, think of the money spent as rent.

    Along with what adjusterjack said on the taxes, I don't know CT's property tax rules, but it might make sense to leave the house in the parents' names because a lot of times there's caps for old people or until a house changes hands.

    Quote Quoting kaktus
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    I spoke to a lawyer he suggested that my parents should gift the house to me.
    I wonder what an attorney would tell your parents.

    Quote Quoting kaktus
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    The risk for them is that if they do gift the house they could not apply for medicaide for 5 years, but since they are covered by LT insurance for 6 years, and beyond that they have significant assets, it is a favorable situation.
    The bigger risk is they need the money from the house, and once they give it away, then it's gone. Because of taxes, a house of a certain value is worth more than the same amount of money in a retirement account because houses have the capital gain exclusion and favorable capital gain tax rates whereas a retirement account is taxed at ordinary income tax rates.

    Quote Quoting kaktus
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    Are there any other possible pitfalls?
    Those "significant assets in a retirement account" can be a lot less significant than you thought depending on how it's invested and another great recession happens. Also, because retirement money usually hasn't been taxed yet, to be safe, you take the value and just cut it in half because that's about how much you get to put in your pocket when you withdraw it.

    As an only heir, you need to look at the big picture so that when your parents pass, you keep as much money out of the government's hands as possible instead of thinking short term as to what's good for you right now.

  5. #5
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    Mar 2013
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    Default Re: Should Elderly Parents Gift the House to Me

    Quote Quoting chyvan
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    spend the money on the remodel, and if they change their mind, think of the money spent as rent.
    I wouldn't. With parents it's not a matter of trust. It's that something unpredictable might happen where they decide they can't or won't give it up.

    Quote Quoting chyvan
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    Along with what adjusterjack said on the taxes, I don't know CT's property tax rules, but it might make sense to leave the house in the parents' names because a lot of times there's caps for old people or until a house changes hands.
    Worth looking into.

    Quote Quoting chyvan
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    The bigger risk is they need the money from the house, and once they give it away, then it's gone. Because of taxes, a house of a certain value is worth more than the same amount of money in a retirement account because houses have the capital gain exclusion and favorable capital gain tax rates whereas a retirement account is taxed at ordinary income tax rates.
    Except that once the house is no longer their primary residence they may have a limited amount of time to sell and take advantage of the capital gain exclusion.

    Quote Quoting chyvan
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    Those "significant assets in a retirement account" can be a lot less significant than you thought depending on how it's invested and another great recession happens. Also, because retirement money usually hasn't been taxed yet, to be safe, you take the value and just cut it in half because that's about how much you get to put in your pocket when you withdraw it.
    Way to many variables involved there for that kind of prediction.

    Quote Quoting chyvan
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    As an only heir, you need to look at the big picture so that when your parents pass, you keep as much money out of the government's hands as possible
    Amen to that.

  6. #6
    Join Date
    Oct 2006
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    15,982

    Default Re: Should Elderly Parents Gift the House to Me

    Quote Quoting adjusterjack
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    I wouldn't. With parents it's not a matter of trust. It's that something unpredictable might happen where they decide they can't or won't give it up.



    Worth looking into.



    Except that once the house is no longer their primary residence they may have a limited amount of time to sell and take advantage of the capital gain exclusion.



    Way to many variables involved there for that kind of prediction.



    Amen to that.
    From IRS publication 523:

    If you become physically or mentally unable to care for yourself,
    you only need to show that your home was your residence for 12 months out of the 5 years leading up to the date of sale. In addition, any time you spent living in a care facility (such as a nursing home) counts toward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition.

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