Upstream Gift

[Upstreamgift]

What is the name of your state? CA

My mother is 90 years old and she lives in her house which is titled in ONLY my name.

I am not sure if she will ever need to live in Nursing home (I assume Medicare will pay for it because she does NOT own any property legally).

I originally planned to sell the house after she passes and split the proceed to my three siblings per her wish (after paying all the capital gain tax)

My new plan is to take advantage of the step-up benefit and also avoid probate:

1. Create a Revocable Living Trust for her NOW with her name as the Trustee and put my other three siblings as beneficiaries of any real properties she will own in the future.

2. A few months before she pass (could be weeks or even days) I will gift the house to her by executing a Grant Deed that will transfer the house directly from me to her Living Trust.

My questions are:

1. Will I have to transfer the house to her name first then she will transfer the house to the trust? Or can I just transfer directly to her Living trust? The reason I want to do this is I don’t know if she can be in the minded state to execute the Trust Transfer Deed (i.e sign the Deed and have it notarized)

2. If she will own the house legally in less than one year, will the house go back to my estate (The assumption I have is that my name is NOT listed in the beneficiary list and the house does not going back to the Donor)

3. If she were admitted to Nursing home, will the Medicare go after the house if they found out she owns it right before she dies?

Thanks in advance!

 

[doucar]

It is Medicaid that will go after the house for any benefits paid out. BTW Medicare does not pay form long term care in a nursing home. She would have to qualify for Medicaid for that to happen.
The other questions are best directed at an Elderlaw/estate planning attorney rather than strangers on the internet.

 

[LdiJ]

What is the name of your state? CA

My mother is 90 years old and she lives in her house which is titled in ONLY my name.

I am not sure if she will ever need to live in Nursing home (I assume Medicare will pay for it because she does NOT own any property legally).

I originally planned to sell the house after she passes and split the proceed to my three siblings per her wish (after paying all the capital gain tax)

My new plan is to take advantage of the step-up benefit and also avoid probate:

1. Create a Revocable Living Trust for her NOW with her name as the Trustee and put my other three siblings as beneficiaries of any real properties she will own in the future.

2. A few months before she pass (could be weeks or even days) I will gift the house to her by executing a Grant Deed that will transfer the house directly from me to her Living Trust.

My questions are:

1. Will I have to transfer the house to her name first then she will transfer the house to the trust? Or can I just transfer directly to her Living trust? The reason I want to do this is I don’t know if she can be in the minded state to execute the Trust Transfer Deed (i.e sign the Deed and have it notarized)

2. If she will own the house legally in less than one year, will the house go back to my estate (The assumption I have is that my name is NOT listed in the beneficiary list and the house does not going back to the Donor)

3. If she were admitted to Nursing home, will the Medicare go after the house if they found out she owns it right before she dies?

Thanks in advance!

If you transfer the house to her then you will need to file a gift tax return for the year that you transfer the house to her/her trust. It is unlikely that you will actually be subject to any gift taxes (unless her house is worth more than 11 million), but it will count against your lifetime limit for gifting. There can also be other potential pitfalls in doing so, particularly if she should pass away prior to having things completed. I would recommend consulting a local probate attorney.

It is Medicaid that could end up paying for nursing home care if she has no assets and Medicaid that will go after any assets that she has. A living trust counts as her personal assets during her lifetime. You should also be aware that the quality of care in a Medicaid paid nursing home is generally several steps below the quality of care in a self paid nursing home.

Right now things are fairly simple and you will not have to go through probate anyway. You are risking some potential complications in order to avoid paying Capital Gains Tax.

 

[Taxing Matters]

2. A few months before she pass (could be weeks or even days) I will gift the house to her by executing a Grant Deed that will transfer the house directly from me to her Living Trust.

That tax plan won't work. The Congress, IRS, and the courts saw that kind of transaction decades ago to try to get a free step up in basis for an owner without they themselves dying or incurring much risk and developed statutes and court doctrines to prevent the tax abuse of such transactions. Here, the step transaction doctrine and/or economic substance tests would come into play and since the transaction starts with you owning the house and shortly thereafter end up again owning the house, the intermediary steps to your mother's trust and then back to you would be ignored for federal income tax purposes. Your basis would end up the same doing your plan above as it would if you just left things as they are now. Certainly talk to a local tax lawyer about it and expressly ask him/her about the application of the step transaction doctrine and economic substance tests would apply before you try this. You could end up spending a lot of money and end up achieving nothing out of it. I would not advise any of my clients to do the transaction as you've laid it out here.

 

[zddoodah]

her house which is titled in ONLY my name.

Why is "her house" titled in your name? When did you become owner of "her house"?

I am not sure if she will ever need to live in Nursing home (I assume Medicare will pay for it because she does NOT own any property legally).

But why would you want her to have the sort of low-quality nursing home care that Medicare/Medicaid covers?

Create a Revocable Living Trust for her NOW with her name as the Trustee and put my other three siblings as beneficiaries of any real properties she will own in the future.

First of all, what do you mean when you say that you want to create a trust "for her"? If she would be the trustee and not a beneficiary, then the trust would not be "for her"? Second, why on Earth would you create a trust with a 90 year old as the trustee? Third, you cannot do this without her agreeing. Is she in agreement about this? Fourth, what would make you think she might come to own new properties in the future?

A few months before she pass (could be weeks or even days) I will gift the house to her by executing a Grant Deed that will transfer the house directly from me to her Living Trust.

You certainly could do that, and I'll ignore the morbid nature of the possibility of knowing how far in advance of her date of death you're doing things, but, when you refer to "her Living Trust," are you referring to the trust of which she would be the trustee and your siblings would be beneficiaries (and you, presumably would be the trustor/settlor)?

Will I have to transfer the house to her name first then she will transfer the house to the trust? Or can I just transfer directly to her Living trust?

You can transfer property you own to anyone you want.

If she will own the house legally in less than one year, will the house go back to my estate (The assumption I have is that my name is NOT listed in the beneficiary list and the house does not going back to the Donor)

Huh? If you transfer the property to the trust you described, of which you would not be either trustee or a beneficiary, then that's that. Why would you think it might "go back to [your] estate" (keeping in mind that your estate is something that won't exist until you die)?

I have no real idea how you conceived of this scheme, but I strongly suggest you seek advice from a local estate planning attorney.

 

[Upstreamgift]

It is Medicaid that will go after the house for any benefits paid out. BTW Medicare does not pay form long term care in a nursing home. She would have to qualify for Medicaid for that to happen.
The other questions are best directed at an Elderlaw/estate planning attorney rather than strangers on the internet.

Thanks for your information. Yes she qualifies for Medicaid.
I will discuss with an attorney later after I know if my plan will work or not.

 

[Zigner]

I will discuss with an attorney later after I know if my plan will work or not.

SMH
Discuss the plan with an attorney to find out if it will work.

 

[Upstreamgift]

If you transfer the house to her then you will need to file a gift tax return for the year that you transfer the house to her/her trust. It is unlikely that you will actually be subject to any gift taxes (unless her house is worth more than 11 million), but it will count against your lifetime limit for gifting. There can also be other potential pitfalls in doing so, particularly if she should pass away prior to having things completed. I would recommend consulting a local probate attorney.

It is Medicaid that could end up paying for nursing home care if she has no assets and Medicaid that will go after any assets that she has. A living trust counts as her personal assets during her lifetime. You should also be aware that the quality of care in a Medicaid paid nursing home is generally several steps below the quality of care in a self paid nursing home.

Right now things are fairly simple and you will not have to go through probate anyway. You are risking some potential complications in order to avoid paying Capital Gains Tax.

Thanks for your opinion. Yes, I'm aware of Gift Tax filing. I know there is a time rush complication that I need to play out. That's why I'm not sure if I can gift the house directly to her trust. Therefore she does not need to sign another Deed (except signing the Preliminary Report when I record my transfer deed (gift the house to her). The reason is that the Preliminary report does not need to be notarized.

 

[Upstreamgift]

That tax plan won't work. The Congress, IRS, and the courts saw that kind of transaction decades ago to try to get a free step up in basis for an owner without they themselves dying or incurring much risk and developed statutes and court doctrines to prevent the tax abuse of such transactions. Here, the step transaction doctrine and/or economic substance tests would come into play and since the transaction starts with you owning the house and shortly thereafter end up again owning the house, the intermediary steps to your mother's trust and then back to you would be ignored for federal income tax purposes. Your basis would end up the same doing your plan above as it would if you just left things as they are now. Certainly talk to a local tax lawyer about it and expressly ask him/her about the application of the step transaction doctrine and economic substance tests would apply before you try this. You could end up spending a lot of money and end up achieving nothing out of it. I would not advise any of my clients to do the transaction as you've laid it out here.

Thanks for your information. I gift the house to my mom but she will pass it to my Siblings only. I will not get anything back. That's why I think it is okay but I'm not sure.

 

[Zigner]

What's the rush?
Why couldn't she have documents notarized?

 

[Upstreamgift]

Why is "her house" titled in your name? When did you become owner of "her house"?

A: I bought it originally in my name.


But why would you want her to have the sort of low-quality nursing home care that Medicare/Medicaid covers?

A: This is not my decision to make. My siblings also will have to decide whether to have her staying in the Nursing home. Probably not but I want to know the issue if she later owns the house right before she dies.


First of all, what do you mean when you say that you want to create a trust "for her"? If she would be the trustee and not a beneficiary, then the trust would not be "for her"? Second, why on Earth would you create a trust with a 90 year old as the trustee? Third, you cannot do this without her agreeing. Is she in agreement about this? Fourth, what would make you think she might come to own new properties in the future?

A: Yes I will need to discuss everything with her so that she will sign the living trust.


You certainly could do that, and I'll ignore the morbid nature of the possibility of knowing how far in advance of her date of death you're doing things, but, when you refer to "her Living Trust," are you referring to the trust of which she would be the trustee and your siblings would be beneficiaries (and you, presumably would be the trustor/settlor)?

A: You are correct except I'm not the Trustor/Settlor, she is. And I'm not the beneficiary.


You can transfer property you own to anyone you want.

A: Normally, she would own the house through my Deed to her. Then she fund the Trust with her Deed to her Trust. But I plan to Deed to her Trust directly. This is what I'm not sure if it is okay.


Huh? If you transfer the property to the trust you described, of which you would not be either trustee or a beneficiary, then that's that. Why would you think it might "go back to [your] estate" (keeping in mind that your estate is something that won't exist until you die)?

I have no real idea how you conceived of this scheme, but I strongly suggest you seek advice from a local estate planning attorney.

A: If my mom owns the house less than one year before she dies, the IRS might not allow the property to get step-up of the basis. This is what I'm afraid of.

 

[Upstreamgift]

What's the rush?
Why couldn't she have documents notarized?

I'm afraid when she is hospitalized or got a heart attack or fell and broke her arm or she become in-competent, etc..

 

[zddoodah]

A: If my mom owns the house less than one year before she dies, the IRS might not allow the property to get step-up of the basis. This is what I'm afraid of.

I asked about 10 questions in my prior response. This answers no more than 1 or 2 of them. If you don't answer the questions I asked, there's nothing I can do for you but repeat the suggestion that you consult with a local estate planning attorney (and I echo what "Zigner" wrote in response #7 in the thread.

 

[Upstreamgift]

Sorry I did replied in the thread and here they are:

Why is "her house" titled in your name? When did you become owner of "her house"?

A: I bought it originally in my name.


But why would you want her to have the sort of low-quality nursing home care that Medicare/Medicaid covers?

A: This is not my decision to make. My siblings also will have to decide whether to have her staying in the Nursing home. Probably not but I want to know the issue if she later owns the house right before she dies.


First of all, what do you mean when you say that you want to create a trust "for her"? If she would be the trustee and not a beneficiary, then the trust would not be "for her"? Second, why on Earth would you create a trust with a 90 year old as the trustee? Third, you cannot do this without her agreeing. Is she in agreement about this? Fourth, what would make you think she might come to own new properties in the future?

A: Yes I will need to discuss everything with her so that she will sign the living trust.


You certainly could do that, and I'll ignore the morbid nature of the possibility of knowing how far in advance of her date of death you're doing things, but, when you refer to "her Living Trust," are you referring to the trust of which she would be the trustee and your siblings would be beneficiaries (and you, presumably would be the trustor/settlor)?

A: You are correct except I'm not the Trustor/Settlor, she is. And I'm not the beneficiary.


You can transfer property you own to anyone you want.

A: Normally, she would own the house through my Deed to her. Then she fund the Trust with her Deed to her Trust. But I plan to Deed to her Trust directly. This is what I'm not sure if it is okay.

 

[zddoodah]

But why would you want her to have the sort of low-quality nursing home care that Medicare/Medicaid covers?

A: This is not my decision to make. My siblings also will have to decide whether to have her staying in the Nursing home. Probably not but I want to know the issue if she later owns the house right before she dies.

It certainly could become your decision to make. If your mother becomes unable to make decisions for herself, then you'd have as much say in the matter as your siblings. My point was that planning for her to be eligible for low quality nursing care isn't a good thing.

First of all, what do you mean when you say that you want to create a trust "for her"? If she would be the trustee and not a beneficiary, then the trust would not be "for her"? Second, why on Earth would you create a trust with a 90 year old as the trustee? Third, you cannot do this without her agreeing. Is she in agreement about this? Fourth, what would make you think she might come to own new properties in the future?

A: Yes I will need to discuss everything with her so that she will sign the living trust.

That doesn't really answer any of the questions I asked.

You certainly could do that, and I'll ignore the morbid nature of the possibility of knowing how far in advance of her date of death you're doing things, but, when you refer to "her Living Trust," are you referring to the trust of which she would be the trustee and your siblings would be beneficiaries (and you, presumably would be the trustor/settlor)?

A: You are correct except I'm not the Trustor/Settlor, she is. And I'm not the beneficiary.

If she is both trustor/settlor and trustee, then this is not something you could create. She would have to create it.

You can transfer property you own to anyone you want.

A: Normally, she would own the house through my Deed to her. Then she fund the Trust with her Deed to her Trust. But I plan to Deed to her Trust directly. This is what I'm not sure if it is okay.

You could either transfer the property to her and then she could transfer it to the trust or you could transfer it directly to the trust. Whether there would be tax or Medicare/Medicaid implications between those two options is something I can't answer.

You/your mother should consult with a local estate planning attorney.