Selling home with life estate?

[Ron M]

What is the name of your state? Arizona

In 1993 my mother in law conveyed her home by joint tenancy deed to my wife and her sister holding a life estate in the property for herself. My mother in law is now in a group assisted living home and she wants to sell the house so she can use the money for her care. Both my wife and her sister agree with this decision. My wife does have power of attorney.

How do we now sell this house with proceeds in Mom's name to be used for her care?

[xylene]

Since both sisters are in agreement, selling the house should not be problematic. (well except for the market)

What you need is a good accountant, you will have gains issues and estate issues and the like.

[Ron M]

Originally Posted by Ron M

What is the name of your state? Arizona

In 1993 my mother in law conveyed her home by joint tenancy deed to my wife and her sister holding a life estate in the property for herself. My mother in law is now in a group assisted living home and she wants to sell the house so she can use the money for her care. Both my wife and her sister agree with this decision. My wife does have power of attorney.

How do we now sell this house with proceeds in Mom's name to be used for her care?

Originally Posted by xylene

Since both sisters are in agreement, selling the house should not be problematic. (well except for the market)

What you need is a good accountant, you will have gains issues and estate issues and the like.

Thanks for your response. I guess the real question here is how do we now sell the house with the proceeds reverting to mom so we avoid capital gain and gift taxes.

[tranquility]

There will be the appropriate capital gains taxes on the house unless you gift the property back to mom and she holds it for two years, then you could get the 121 exclusion. The life estate is valued according to Reg. Section 1.1014-5(a)(2) and that amount is subtracted from the FMV at the time of the regifting to see what gift tax/reporting requirements there would be. (Or, what the capital gain would be to you, with the basis being reduced similarly but with a younger mother. [See an accountant.])

As to mother, if sold now, since a life estate is considered an interest in the property itself and she has been living in the home (I assume) I believe she would get the exclusion on the gain between the value of the original life estate and the current life estate. It is difficult to say how much appreciation would be excluded because a life estate tends to dimish in value as the measuring life gets older.

[garrula lingua]

If Mom is on Medicaid, the regifting of the house will stop her Medicaid benefits.

She's OK in having gifted it in 1993; since 2005, she will propbably be ineligible for Medicaid for a period if the house proceeds are in her name (if Medicaid, they will charge her $ or eject her from the home).

She will have to pay the approx. $6,000 per mo. nursing home costs from the proceeds of the house.
After that, she'll be eligible for Medicaid again (or, alternatively, she will be ineligible for the period of the number of days of nursing home costs which the proceeds represent).

Mom gifted her house to her daughters fourteen years ago; be careful, if Mom is on Medicaid, that you don't regift the house to the government (unless she's a private pay patient -- then, her asset/income doesn't matter, or maybe you wish to donate.)


Please Seek advice from an Elder Law Attorney before you do anything.

[tranquility]

garrula lingua's advice is far better than mine. I answered the question asked, he answered the question which should have been asked.

[garrula lingua]

Whoa, Tranq - you probably answered the actual problem. I'm just guessing at a possible.

I've been doing penance (pro bono) with some Elder Law and scared myself with my ignorance. Ergo, I'm reading a lot, lately.

But, it was nice to have a brainiac like you say that.

[Ron M]

Originally Posted by tranquility

There will be the appropriate capital gains taxes on the house unless you gift the property back to mom and she holds it for two years, then you could get the 121 exclusion. The life estate is valued according to Reg. Section 1.1014-5(a)(2) and that amount is subtracted from the FMV at the time of the regifting to see what gift tax/reporting requirements there would be. (Or, what the capital gain would be to you, with the basis being reduced similarly but with a younger mother. [See an accountant.])

As to mother, if sold now, since a life estate is considered an interest in the property itself and she has been living in the home (I assume) I believe she would get the exclusion on the gain between the value of the original life estate and the current life estate. It is difficult to say how much appreciation would be excluded because a life estate tends to dimish in value as the measuring life gets older.

Originally Posted by garrula lingua

If Mom is on Medicaid, the regifting of the house will stop her Medicaid benefits.

She's OK in having gifted it in 1993; since 2005, she will propbably be ineligible for Medicaid for a period if the house proceeds are in her name (if Medicaid, they will charge her $ or eject her from the home).

She will have to pay the approx. $6,000 per mo. nursing home costs from the proceeds of the house.
After that, she'll be eligible for Medicaid again (or, alternatively, she will be ineligible for the period of the number of days of nursing home costs which the proceeds represent).

Mom gifted her house to her daughters fourteen years ago; be careful, if Mom is on Medicaid, that you don't regift the house to the government (unless she's a private pay patient -- then, her asset/income doesn't matter, or maybe you wish to donate.)


Please Seek advice from an Elder Law Attorney before you do anything.

We appreciate all of the good advice. Mom is a private pay patient so we're not looking at the medicare issue, at least not yet and that's a whole new thread. Our issue now is "how do we legally sell the house and avoid the capital gains and gift taxes". Sure seems like there should be a way to do that. Mom did live in the house until several months ago and it has been empty since she went in assisted living. The sisters are OK with quit claiming (or gifting) it back to mom or just putting the proceeds from the sale into an account only in mom's name or an account owned jointly by all three or whatever. I'm sure that the Elder Law Attorney is in our future but we're still trying to identify the problem and "creative solutions" at this point. Thanks ...ron

[tranquility]

From the discription, the end desire will require mom having ownership for two years. That means a gift now, and she holds it for two years before she gets a 121 exclusion of $250K. Otherwise, capital gains will have to be dealt with.

To GL, brainiac? I'm just the guy who has to read the code when everyone else at the office has already come to a conclusion. Reading is a *good* thing as it helps us remember the things we've forgotton.

[Ron M]

Originally Posted by tranquility

From the discription, the end desire will require mom having ownership for two years. That means a gift now, and she holds it for two years before she gets a 121 exclusion of $250K. Otherwise, capital gains will have to be dealt with.

To GL, brainiac? I'm just the guy who has to read the code when everyone else at the office has already come to a conclusion. Reading is a *good* thing as it helps us remember the things we've forgotton.

That all makes sense, not exactally what I wanted to hear, but sense. If the sisters gift the house back to mom now does that create a gift tax sisuation for them? ...ron

[tranquility]

They will almost assuredly have to complete gift tax returns, but will probably not need to pay any tax. (Their lifetime exclusion will be reduced by the amount of the gift.) Since the calculation for the amount to put on the return will be difficult, it will be worth it to see an accountant.

[FlyingRon]

Originally Posted by Ron M

That all makes sense, not exactally what I wanted to hear, but sense. If the sisters gift the house back to mom now does that create a gift tax sisuation for them? ...ron

HOLDING it for two years isn't the requirement. If she is in assisted living she won't qualify.
You have to have the property as your PRINCIPAL RESIDENCE for 24 out of the preceding 60 months.

You got a mess, contact an elder law/tax attorney for the best way out.

[tranquility]

HOLDING it for two years isn't the requirement. If she is in assisted living she won't qualify. You have to have the property as your PRINCIPAL RESIDENCE for 24 out of the preceding 60 months.

The code says owned and lived in for 2 of the last 5 years, they don't have to be contemporaneous. Also, if a taxpayer becomes physically or mentally unable to care for themselves (for periods aggregating at least a year), per code section 121(d)(7), the taxpayer is treated as using the property as his principal residence during any time during the five year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a state or political subdivision to care for an individual in the taxpayer's condition.