Upstream Gift

[LdiJ]

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.

I honestly don't understand why you feel you even need to do this in the first place. If you bought the house in your name to start with, it doesn't make sense that it will go to your siblings (unless you used someone else's money to buy it, and in that case that detail could matter in the overall scheme of things). Also, that is a lot of effort, complication and potential pitfalls to save your siblings some capital gains tax. Yes, you will end up paying the tax but it would be coming out of the proceeds so ultimately you won't be paying it.

 

[Upstreamgift]

I honestly don't understand why you feel you even need to do this in the first place. If you bought the house in your name to start with, it doesn't make sense that it will go to your siblings (unless you used someone else's money to buy it, and in that case that detail could matter in the overall scheme of things). Also, that is a lot of effort, complication and potential pitfalls to save your siblings some capital gains tax. Yes, you will end up paying the tax but it would be coming out of the proceeds so ultimately you won't be paying it.

I know I will use the proceeds to pay tax but if I'm trying to take advantage of the Upstream Gifting to avoid paying all of the tax.
My main question is if I do a grant deed that transfers the house to my mom's trust, will the house get step-up in basis after she passes.
I can just gift to her name directly but then we have to go thru the probate. Therefore I want to help my mom to create her living trust ahead of time.

 

[Taxing Matters]

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.

That is different to an extent. But the IRS would likely still apply the step transaction and economic substance doctrines to treat the transaction as a direct gift of the property from you to your siblings, again leaving the basis unchanged. The fact that home is in her trust for only a short time and there was a plan in place to pass it to your siblings would make the steps of the transfer to and from the trust transitory and ignored under the step transaction doctrine in particular. But now it would be your siblings who would get the property and have to deal with the gain when it sells. Will any of them live in the home for at least a few years? That could help reduce or eliminate capital gain if planned properly.

 

[Upstreamgift]

That is different to an extent. But the IRS would likely still apply the step transaction and economic substance doctrines to treat the transaction as a direct gift of the property from you to your siblings, again leaving the basis unchanged. The fact that home is in her trust for only a short time and there was a plan in place to pass it to your siblings would make the steps of the transfer to and from the trust transitory and ignored under the step transaction doctrine in particular. But now it would be your siblings who would get the property and have to deal with the gain when it sells. Will any of them live in the home for at least a few years? That could help reduce or eliminate capital gain if planned properly.

I found this on the web: so as long as I will not receive the asset back from my mom after she passes( she is the donee and I am the donor) then the asset will receive a step up

“ IRC Section 1014(e) prohibits a step up in basis in regards to appreciated property that was acquired by the decedent via a gift within one year of their death. Thus, section 1014(e) would provide for a carryover basis for such property. Section 1014(e) specifically states: In the case of a decedent dying after December 31, 1981, if: (A) appreciated property was acquired by the decedent by gift during the 1 year period ending on the date of decedent’s death, and (B) the property is acquired from the decedent (or passes from the decedent to) the donor of the property (or the spouse of such donor), the basis of the property in the hands of such donor (or spouse) is the adjusted basis of the property in the hands of the decedent immediately before the death of the decedent. Appreciated property is defined as “any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.”
By requiring that the donee spouse survive for at least one year after the transfer, IRC Section 1014(e) limited the ability of a tax free transfer to a terminally ill spouse and then the receipt of such property upon the death of the terminally ill spouse with a step up in the basis of the property. Moreover, the Internal Revenue Service has also ruled that IRC Section 1014(e) will apply to portions of property that are held in a joint revocable trust funded with assets that were held by the grantors as tenants by the entireties.
In 2001, the Economic Growth and Tax Relief Reconciliation Act repealed Section 1014, and a carryover basis position was implemented under IRC Section 1022. This code section will (or may) apply to decedents passing after December 31, 2009. IRC Section 1022 holds that property received from a decedent is treated as if received via a gift, thus the recipient of the gift would have a basis equal to the lesser of the decedent’s adjusted basis of the fair market value as of the date of death. Thereafter the 2010 TRA did reinstate the estate tax and fair market value basis at death provisions, and repealed the IRC Section 1022 carryover basis for decedents passing after 2009”

 

[Taxing Matters]

I found this on the web: so as long as I will not receive the asset back from my mom after she passes( she is the donee and I am the donor) then the asset will receive a step up

That Code section does not apply to your situation. The step transaction doctrine catches transfers that are made close in time to the decedent's impending death to get that basis step up and then the property goes to the real intended recipient. So if she goes in the hospital and you're told she's got a week to live and you transfer the house to her during that week to get the step up in basis the step transaction doctrine should take over in which case the IRS and the courts will generally treat that as though you directly made a gift of the property to your siblings. This is a court doctrine that was created to prevent abuse of the tax code to prevent treatment that Congress did not intend. So you won't find it in the Code, but you do find it in court cases. The further back before her death you make the transfer the less likely you are to run into that problem. Six months to a year might do it. But if it's a deathbed transfer (e.g. a few days or weeks before her death with knowledge she was going to die in that very short period of time), that could be a problem. I suggest you consult a tax attorney about the timing of the transaction to minimize your risk of step transaction treatment.

 

[Upstreamgift]

That makes sense to me.

 

[Upstreamgift]

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.




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




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




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.

Hi Zddoodah,
Per your previous question:

Upstreamgift said:
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.

I just found out that a Trust does NOT exist if the Settlor (my mom) does NOT currently own the ASSET (the house) and I'm afraid that if I help her to create the Trust now and later (could be a few years down the road), I transfer the Property directly to her Trust and the Probate Court might not consider the Trust existed. Will that become a problem?

 

[Zigner]

Hi Zddoodah,
Per your previous question:


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

I just found out that a Trust does NOT exist if the Settlor (my mom) does NOT currently own the ASSET (the house) and I'm afraid that if I help her to create the Trust now and later (could be a few years down the road), I transfer the Property directly to her Trust and the Probate Court might not consider the Trust existed. Will that become a problem?

Talk to an estate planning attorney - really.

 

[Taxing Matters]

I just found out that a Trust does NOT exist if the Settlor (my mom) does NOT currently own the ASSET (the house) and I'm afraid that if I help her to create the Trust now and later (could be a few years down the road), I transfer the Property directly to her Trust and the Probate Court might not consider the Trust existed. Will that become a problem?

If your mother is mentally competent (and the standard for that is not very high) she can create the trust. I'd suggest she have an attorney do it to get it right. A trust with no assets is known as a dry trust and is essentially worthless. The trust would need some cash for maintenance fees like bank fees, etc., anyway so she could transfer a few thousand dollars to the trust to help pay those expenses and keep the trust active until the property is transferred to her trust. She could transfer other assets to it, like her car (if she has one), etc. The more of her stuff that is in the trust the easier and less costly resolving her estate is likely be. It is my understanding the probate process in CA is slow and and can result in fees that could be avoided with the trust. A lot of Californians I know put practically everything they have into a revocable living trust for that reason, with a back up will that dumps any assets they had that were not already in the trust to the trust. That's something the estate planning attorney can help with.

 

[Upstreamgift]

That’s good to know. So I can create her Trust now and put something in it to make it valid.
Thanks

 

[Taxing Matters]

That’s good to know. So I can create her Trust now and put something in it to make it valid.
Thanks

Yes. A trust doesn't need a lot of assets to be valid. But it can't be a dry trust (e.g. have no assets). Put some money and maybe a small investment in there to generate some income to help pay the minor trust expenses it incurs while not doing much. Doing things well before she dies not only makes the trust harder to attack but it also means the trust is ready to go when you need it, eliminating one source of anxiety/pressure when she becomes very ill or dies suddenly.

 

[Upstreamgift]

Yes. A trust doesn't need a lot of assets to be valid. But it can't be a dry trust (e.g. have no assets). Put some money and maybe a small investment in there to generate some income to help pay the minor trust expenses it incurs while not doing much. Doing things well before she dies not only makes the trust harder to attack but it also means the trust is ready to go when you need it, eliminating one source of anxiety/pressure when she becomes very ill or dies suddenly.

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




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




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?




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)?




You can transfer property you own to anyone you want.




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.

Per your question:

“Second, why on Earth would you create a trust with a 90 year old as the trustee? “

Now I wonder should my mom let my oldest sister be the Trustee of my Mom’s Living Trust? She have been taking care of my mom on banking and stuff.

So in the near future I will transfer my mom house directly to the Trustee, who is my oldest sister. She also one of the Beneficiaries. Will the house become my mom’s estate and get the step up basis?

 

[Upstreamgift]

Per your question:

“Second, why on Earth would you create a trust with a 90 year old as the trustee? “

Now I wonder should my mom let my oldest sister be the Trustee of my Mom’s Living Trust? She have been taking care of my mom on banking and stuff.

So in the near future I will transfer my mom house directly to the Trustee, who is my oldest sister. She also one of the Beneficiaries. Will the house become my mom’s estate and get the step up basis?

Assuming I will skip the transfer to my mom name first. The reason is at that time my mom might not be competent ( or have the capacity) to transfer the house to the Trust herself

 

[Upstreamgift]

Hi,

One of my co-worker mentions about the "Power of Attorney" which my Mom can create and appoint my Sister as the Agent.

Now I have a few questions:

1. Can the Agent (my Sister) later create a Living Trust that My Mom is the owner?
2. Before My mom die (a few months), I will gift My Mom (through the Agent) the house, then the Agent will transfer it into the Living Trust. Is this okay?
3. After my Mom dies, the House will be passed to my other siblings (including my Sister) tax free? (Step-up). Is it okay?

The reason is that I'm not sure if My mom still be competent at the time I want to gift her the house. So using POA will resolve this problem. Am I correct?

Thanks

 

[Zigner]

Hi,

One of my co-worker mentions about the "Power of Attorney" which my Mom can create and appoint my Sister as the Agent.

Now I have a few questions:

1. Can the Agent (my Sister) later create a Living Trust that My Mom is the owner?
2. Before My mom die (a few months), I will gift My Mom (through the Agent) the house, then the Agent will transfer it into the Living Trust. Is this okay?
3. After my Mom dies, the House will be passed to my other siblings (including my Sister) tax free? (Step-up). Is it okay?

The reason is that I'm not sure if My mom still be competent at the time I want to gift her the house. So using POA will resolve this problem. Am I correct?

Thanks

Your scheme won't work to avoid taxes, and you were told the same thing over a year ago when you began this thread.