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Buying property together?

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Stevesdawg

Junior Member
What is the name of your state (only U.S. law)? North Carolina. My father has dementia and can no longer live alone. When my mother died in 2006, we updated Dad's will and got a living will and POA in my name first, then my brother. (Only sibling, lives several thousand miles away, but he's in total agreement with everything -- no squabbles.) Dad and I live 5 hrs. apart but for the past year, have been together 24/7 dividing our time between his place and mine. (We live in different states.)

We are in the process of buying a house in North Carolina which is to be both of our primary residence. We are very blessed to be in a position where both of our current houses are paid off, and will NOT be needing a mortage on the new house, either. We will be selling both of our current houses, but realize we will probably be stuck with them for at least some period of time. (Their sale will NOT be necessary to purchase the new place.) The house in North Carolina will be approximately the same value of my dad's current house, which is about double the value of my current house.

I have been and will continue to be my dad's primary caretaker. He is physically in excellent health, and as of yet his dementia issues are primarily daily living skills related, not behavioral issues. My question is when we buy the North Carolina property, should we buy it in BOTH of our names or just in MY name?? The majority of the money to purchase it will be from my father. It is everyone's (my father, my brother, and my) intention that I will continue to live in the North Carolina house for the remainder of my life after my father passes on. I don't want to do something now out of ignorance that's going to cause headaches in the future, if I can avoid it.

Thanks,
Stevesdawg
 


TrustUser

Senior Member
generally, when your dad passes, the kids will get a full step-up in value ON THE PORTION THAT HE OWNS. so if you buy it together, you would not get a step-up in basis on your portion.

the best way to purchase it is in a trust, with your dad as grantor, you and possibly him as trustees, and you as beneficiary. that way you avoid probate, but you get the full step-up in value.
 

curb1

Senior Member
Trustuser,
Dad already has a trust. Title the new house within the existing trust. Successor trustee (Stevesdawg) is probably now the Trustee. The beneficiaries are already designated.

The big question will be capital gains on the houses that you will be selling. Dad should have no capital gain (generally) by buying the new house. Stevesdawg could have a capital gain liability depending on how much gain there is from selling Stevesdawg house. What is the basis of Stevedawg's house and what will be the selling price?
 

Stevesdawg

Junior Member
Thanks for the input!! I'm thinking that my house will probably only sell for about what I bought it for eight years ago, thanks to the current market. Dad's house and the house in North Carolina will basically be equal, and I'm thinking Dad isn't going to get much more than he paid for his place originally, either. We're both currently in the Northeast, so the housing market is pretty dead.

My original research on this topic pretty much pointed me toward purchasing the NC house in trust, but I was afraid it might be complicated and slow the entire process down too much. Guess it won't, really . . . Ideally, I'd like to make a purchase and get the essentials and Dad and I settled in NC before the worst of the winter rolls in, because I have no desire to commute between our two current houses through snowstorms. If our current houses sit basically empty until we can do more in spring/summer next year, so be it . . . That won't kill us . . .

Let me see if I understand how purchasing a house in trust would work: The trust lasts two years, and as long as Dad survives those two years, at the end of it the deed is put into MY name only, and it's NO longer considered a part of Dad's estate when he passes, correct??

Thanks again!
 

TrustUser

Senior Member
i saw no mention of an existing trust.

but if one exists, i would still place the new residence in its own trust. an existing trust probably names both sons as beneficiaries. whereas this new house is to be just the property of one son.

also, it is best to separate assets with lawsuit potential from ones that dont have lawsuit potential. ideally, every piece of real estate should be placed in its own separate trust.

the advice on step-up in value is the same. but perhaps not everyone understands what that means. "basis" is what is used, when determining gain on the house when sold. if owned totally by the dad, the son will inherit the house at the value when the dad passes, and should he sell it later, he would have a gain based upon that value.

if a portion of the house is in his name, then the basis will be less (assuming the house appreciates in value), and the gain on the house would be more, should the son sell it.

anyways, some things to think about.
 

curb1

Senior Member
Stevesdawg,

Is there a Trust associated with the "living will"?

Both of you are making this too difficult (if there is a trust associated with the "living will"). This is a very simple situation and there is no need to make it complex.

The living trust has already been established. Use it. New trusts are not available since the father now has established dementia.

There are no problems here. Buy the new house and title it properly within the established trust. No problem. End of story.

I don't understand the statement by Stevesdawg, "The trust lasts two years, and as long as Dad survives those two years, at the end of it the deed is put into MY name only, and it's NO longer considered a part of Dad's estate when he passes, correct??

I don't know why the trust was set up in this way. Why was there a time limitation on this trust? Are you sure? Was this trust competently constructed?
 
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anteater

Senior Member
Trustuser,
Dad already has a trust. Title the new house within the existing trust. Successor trustee (Stevesdawg) is probably now the Trustee. The beneficiaries are already designated.

The big question will be capital gains on the houses that you will be selling. Dad should have no capital gain (generally) by buying the new house. Stevesdawg could have a capital gain liability depending on how much gain there is from selling Stevesdawg house. What is the basis of Stevedawg's house and what will be the selling price?
I think Curb may have seen "living will" and misinterpreted.

I don't see anything in Stevesdawg's post that would indicate that both can't claim the capital gains exclusion, if a sale occurs reasonably soon. The requirements are:

This means that during the 5-year period ending on the date of the sale, you must have:
Owned the home for at least 2 years (the ownership test), and
Lived in the home as your main home for at least 2 years (the use test)
Curb -- You snuck in another response just as I was starting. A living will has nothing to do with a trust. I assume that Stevesdawg means an advance health care directive. I don't know about the "established dementia" either. It depends upon whether it is advanced enough to make Dad legally incompetent. I do not agree that this is a "very simple situation."

Stevesdawg -- You have a lot of moving parts and considerations here and we do not have a good picture of the entire situation:

1) Dad's legal competency.
2) Possible Medicaid considerations. I realize that you are going to try to care for Dad, but, at some point, that may become impossible.
3) Your sibling. He may agree now, but attitudes do change over time.

I would advise that Dad spend a few bucks and consult with an elder law attorney.

(And Trustuser may drop over. But, this may be a situation where an irrevocable trust makes sense. Although the "lawsuit paranoia" and "a trust for every asset" is over the top.)
 
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curb1

Senior Member
Anteater,
I agree that with lack of precise information, I definitely made too many assumptions. It doesn't really matter if there was, or was not a trust. I still think this is a simple situation, however. 1) It appears that there will be no capital gains on either of the houses to be sold. 2) "Dad's" will is updated and everyone is satisfied with its directives. 3) When Dad passes, Stevedawg continues living in (and inherits) house per will.

I agree that Medicaid comes into the picture and that "Dad's" assets could easily need to be used if "Dad" needs special care/housing.
 

TrustUser

Senior Member
i guess we are all having to make some assumptions.

1) i also assumed that his living will was an advanced health care directive.

2) when he mentions trust, and the 2 years, he does so when talking about purchasing his new home. it did not sound to me that he already had one. the 2 years did not make sense to me in any context, so i assumed there was some confusion about it, and i simply ignored that part of the comment.

3) if it is the father's intention to have the home for the one son, separate it completely with a separate trust. as anteater said, the other son may "change his mind" when the father passes.

4) things can seem full of paranoia, until they occur to you. lawsuits can occur to property, and some people are in the situation of not being able to make new monies, so protecting what they have can be extremely important.

5) not only do i create a separate trust, but i use the property address as the trust name, to better help with privacy matters.

6) people who own lots of properties will often use a non-related trustee, so that nothing on the title of the property points back to the real owner. it is a disadvantage for someone to have their properties traceable.

7) all of these reasons are why i decided to become knowledgeable enough about the actual making of trusts, since i do use them, as my name suggests, on a very ongoing basis.

8) anteater - a question for you. you mentioned an irrevocable trust. i dont know the rules about them. but my first question would be - is this considered a gift at the time of placing the property into the trust ? if so, it might not qualify for a step-up in basis when the father passes. i just wanted to get some clarity on that. thanks.

9) i also assumed that the dementia was not serious enough yet to prevent the father from signing a new trust.
 
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curb1

Senior Member
Trustuser and anteater,
I think both of you are taking the opposite side that I would about the dementia. I think that it could easily be challenged. It is serious enough that Dad needs assistance in daily life. Medication?

You said, "i also assumed that the dementia was not serious enough yet to prevent the father from signing a new trust."

A will is in place. Go with it. Buy the new house in Dad's name. Don't worry about capital gains on either the old houses, or the new house. Keep other brother completely informed about everything that is happening.
 

TrustUser

Senior Member
lots of people need daily attention, but are capable of having documents notarized.

but for example, parkinsons can cause dementia-like problems, need special care, and almost always needs medication, since the brain is no longer able to produce its own dopamine. but one can exist for years in a state where they are capable of signing documents.

that is something that the op needs to tell us.
 

curb1

Senior Member
I think that there is no problem with the present situation, given the information.
1) a will is in place.
2) a "living will" is in place.
3) a POA is in place
4) there are no capital gains problem.
5) buy new house in Dad's name.

Perhaps a better consideration would be for Dad to rent a nice place and keep assets liquid in case of future economic needs.
 

anteater

Senior Member
I admit that I tend to focus here on potential Medicaid issues. That may or may not be a consideration in this case. But it is the reason for suggesting that it may be better to keep the house out of Dad's name or a revocable trust.

I am hardly well-versed in Medicaid issues. There is a "caregiver child" exemption on property transfers. And I think that has survived the recent changes in the law. But my understanding is that the timing of those transfers can be tricky.

8) anteater - a question for you. you mentioned an irrevocable trust. i dont know the rules about them. but my first question would be - is this considered a gift at the time of placing the property into the trust ? if so, it might not qualify for a step-up in basis when the father passes. i just wanted to get some clarity on that. thanks.
I believe that you are correct, but not absolutely certain. With OP's intention to own and remain in the house after Dad passes away, and, therefore qualify for a capital gains exclusion even if he later decides to sell (well, at least after 2 years of having outright ownership), I did not put a heavy weighting on the basis step-up question with the new house. Seems to me that there would have to be an awful lot of appreciation from purchase to when Dad passes away for that to be a factor.
 
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TrustUser

Senior Member
in california, there is a time frame (3 years if i recall) in which an asset must be transferred, before it is protected. (regarding medicaid).

also in california, housing prices go up much faster than elsewhere. although with the current mortgage crisis, they are probably going down faster, as well - LOL.

i dont tend to focus on medicaid, cuz basically i think that a family should exhaust its own resources before asking for help from the taxpayers.
 

anteater

Senior Member
The 2006 changes (Deficit Reduction Act, if I remember correctly) changed the lookback and disqualification period to 5 years. The "caregiver child" transfer exception allowed transfer of a home to a caregiver child who had resided with the Medicaid applicant for at least 2 years prior to application and provided caregiver services. But that had to be documented care and, as I mentioned before, I remember that the transfer timing could be tricky. That's from memory, and it may have changed, and probably is subject to interpretation at the administering state level.

I tend to think that housing price appreciation will be "subdued" for quite a few years. But, what do I know?

I dont tend to focus on medicaid, cuz basically i think that a family should exhaust its own resources before asking for help from the taxpayers.
I agree in spirit. But the law does allow for some degree of "planning." My own opinion is that, if you think there is frenzy now about trying to protect elders' assets from long term care expenses, wait until the Baby Boom generation gets to the point of needing long tem care. All heck will break loose.
 
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