Tax liability when doing a 0% deed transfer

[westoh]

What is the name of your state? IN

My mother is planning on transferring the title of her paid, free-and-clear house to my sister for $0 prior to moving into a retirement community. The ultimate plan is for my sister to sell the house and then put the money into an account under her or her's and my names. We would not access this money unless warranted for my mothers needs. Upon my mothers death, any remaining money would be split based upon her will.


My questions:

1. Will my sister have to pay any taxes upon the 0 $ transfer? If so, how will the house's value be calculated and at what tax rate would she be taxed?

2. What taxes will be involved upon the sell of the house?

3. Other than any earnings, are there tax liabilities for her and/or I based upon the account created with the proceeds of the sell?

4. Non tax question, but related: Upon the transfer, how many years must pass before the state considers this house to not be a part of my mother's estate?



Thank you,

rgwWhat is the name of your state?

 

[Ozark_Sophist]

The look back provisions pertaining to Medicaid fraud are stiffer now then they were a short time ago. It appears what your mother and sister are attempting to do is defraud the taxpayers. In addition, after the deed transfer, what prevents your sister from keeping the house proceeds for herself.

 

[Ozark_Sophist]

Medicaid Look-Back Period (during eligibility determination)

Medicaid will look back 3 years from the time of application for Medicaid assistance to determine whether the applicant transferred any countable assets for less than fair market value in order to be eligible for Medicaid assistance (known as an "illegal transfer").

This look back period for trusts is 5 years.

If the applicant is an inpatient of a nursing facility and it is determined the applicant performed an illegal transfer, then they are penalized in that Medicaid will not provide assistance for a period of time equal to the dollar amount of assets transferred. The penalty period would be applied beginning with the date of the first illegal transfer.

I found the above at http://www.state.in.us/fssa/iltcp/look_back.htm

It's important to remember that Medicaid laws across the country are in flux given the rising costs of health care. Your family could transfer and sell the house now, but two years from now, the look back provisions could be extended. Your mom could potentially not have any funding for a long period of time--particularly if you use the sale of her house to keep her "afloat" for the three year period.

 

[efflandt]

One thing to look at is how much capitial gains tax is sis going to be liable for if mom transfers the home to her for $0 and then sis sells it? If mom sells it, she would get the $250,000 capital gains exclusion. If sis sells it, she may be liable for capital gains on the entire amount (unless she lives in it for 2 years). If you inherit the home, there is a lifetime estate exclusion and cost basis would be the value at time of mom's death.

So even if this scheme is not to fraudulently obtain public aid for mom, it could net you less than you think if you plan on immediately selling the home after transfer.