Tax consequences

[Janitor Bob]

Woman plans on moving into a nursing home in a few years. She put's her home in her son's name so that nursing home can't take it in a few years.

Question.....Are there any tax consequences for the son to be concerned about?

[JohnH]

First she should tell you (or her son) what her elder-law attorney advised her when the attorney suggested that she put the house in her son's name. Apparently she didn't look into the tax consequences ahead of time, but she did speak with an attorney before doing something this rash, didn't she?

[Jack from Ohio]

Look-back is now 5 years. Make sure she is under consultation with an estate planning lawyer. Thoughts of future tax consequences when/if the son sells the home. The basis will be $0 if she gifts it to him. Generally, this kind of transaction does not provide the desired results.

[Janitor Bob]

Look-back is now 5 years. Make sure she is under consultation with an estate planning lawyer. Thoughts of future tax consequences when/if the son sells the home. The basis will be $0 if she gifts it to him. Generally, this kind of transaction does not provide the desired results.

Thanks....This is what I thought...and No, of course they did not consult me first...Just the estate attorney.

She is not planning on moving into the nursing home any time soon.....hopefully more than 5 years from now...but she heard about the Look-back period so is being smart and doing it now. I did inform the son that his basis would be zero if he sold the home and proceeds would be all gain.....He said he understood.....It will likely be a different story when/if he ever sells it. I have documented our conversation in his file.

[taxit]

His basis would not be zero. It most likely will be the same as his mothers basis.

[TaxmannEA]

His basis would not be zero. It most likely will be the same as his mothers basis.

Agreed. His basis should be the same as his mother's. Mom should probably file a gift tax return as the value would probably be over $13,000.

[Kea]

Is the son planning on living in this house (say for 2 out of 5 years) before selling it?

I agree Mom needs to file a gift tax return.

[GeneInAlabama]

What if the son is sued because of a bad auto accident or whatever, and he loses the home. His mother would be put out of her home.

[mcb39]

Was it an outright transfer or did she retain a Life Estate? Could make a lot of difference per taxes. If she were to pass away prior to surrendering home, his basis would be basis on her DOD. However, if she does go into a nursing home, a totally different story.

[Kea]

>>If she were to pass away prior to surrendering home, his basis would be basis on her DOD. <<

Not starting in 2010 and beyond -- unless Congress changes the rules back.

[mcb39]

>>If she were to pass away prior to surrendering home, his basis would be basis on her DOD. <<

Not starting in 2010 and beyond -- unless Congress changes the rules back.

Thanks for the update. I had missed that one.

[JohnH]

I continue to remain confused on this basis issue. I thought the executor could assign a stepped up basis(not to exceed the FMV) for assets inherited in 2010, with a maximum limit of $1.3 Million for the entire estate. If that's correct, then if the mom died in 2010 and the house were still in her name, he would get stepped up basis unless her estate exceeds $1.3 million. Am I wrong?

[Gail in Virginia]

From IRS website FAQ:

How do I calculate the basis of a decedent’s assets who died in 2010?

Generally, for the estates of decedents dying after December 31, 2009 and before January 1, 2011, the basis of assets acquired from the decedent is the lesser of the decedent's adjusted basis (carryover basis) or the fair market value of the property on the date of the decedent's death.

However, there are two exceptions to this general rule:

* The executor can allocate up to $1.3 million (increased by unused losses and loss carryovers) ($60,000 in the case of a decedent nonresident not a citizen of the United States, but with no loss or loss carryover increase) to increase the basis of assets; and

* The executor can also allocate an additional amount, up to $3 million, to increase the basis of assets passing to a surviving spouse, either outright or in a Qualified Terminable Interest Property (“QTIP”) trust.

[JohnH]

So according to that, if the mother died in 2010 and the son inherited the house, then the executor could set his basis to be the FMV of the house provided the total value of the estate is less than $1.3 million. If the estate is valued at more than $1.3 million, then there might be some allocation among the assets necessary. Am I right or am I still confused?

[Gail in Virginia]

I think that you have it right, for this year anyway. I am still waiting to see what happens in the future.

[KEYWEST_RICKS]

off topic a bit but am i the only one that cringes whenever i hear something like this? The state medicaid program is there to make sure her medical bills are paid if she is unable to pay them... not ensure that her son gets something from her when she passes. seems like total welfare fraud to me. If we changed this and said mom put her paycheck in her sons name so that she could qualify for food stamps... we would all be upset and think this unethical! but it seems that many attnys do this all the time.

[JohnH]

IMO you are correct, but in most cases this is the elephant on the sofa whenever the subject is gently being tiptoed around.

[mcb39]

IMO you are correct, but in most cases this is the elephant on the sofa whenever the subject is gently being tiptoed around.

It's a good thing that classes are coming up in a few weeks. Generally, they cover all the changes in various degrees of depth. Sometimes I wonder why I continue to prepare tax returns. But, as I told my friend at the local IRS office the other day; somebody has to help the people who don't know how to help themselves. Thanks to all of you who are here to help me.