Grandmother gifting property to me - Advice on how to proceed

[BenZachary]

What is the name of your state (only U.S. law)? Rhode Island

Hello...

My grandmother is in poor health ) :

She is gifting a property to me that I believe has been assessed in the 200k to 400k range. I will find out soon.

My question is ... What is the best manner of making the transfer? Would it be the 'sale and debt forgiveness method'?
We would prefer to go about this without a lawyer, however if it is strongly advised, we are considering it.

Neither me nor my grandmother have much in the way of savings (just about 4k between both of us), so paying a large tax or lawyer's fee will be very hard. Additionally, I have unfortunately just received a wage garnishment notice due to a federal student loan of 50k. I am concerned about a lien, but as I understand it, the gov't cannot outright seize property, is this correct?

Despite all this adversity, I have made recent advancements in my career, and should have enough to pay both the tax, and my student loan payments, for the first time in my life, perhaps in a nick of time. The property in question was built by my deceased grandfather, and we will do everything we can to hold onto it.

If anyone could point out some basic steps, I would be very grateful.

Thanks,
Ben

 

[LdiJ]

What is the name of your state (only U.S. law)? Rhode Island

Hello...

My grandmother is in poor health ) :

She is gifting a property to me that I believe has been assessed in the 200k to 400k range. I will find out soon.

My question is ... What is the best manner of making the transfer? Would it be the 'sale and debt forgiveness method'?
We would prefer to go about this without a lawyer, however if it is strongly advised, we are considering it.

Neither me nor my grandmother have much in the way of savings (just about 4k between both of us), so paying a large tax or lawyer's fee will be very hard. Additionally, I have unfortunately just received a wage garnishment notice due to a federal student loan of 50k. I am concerned about a lien, but as I understand it, the gov't cannot outright seize property, is this correct?

Despite all this adversity, I have made recent advancements in my career, and should have enough to pay both the tax, and my student loan payments, for the first time in my life, perhaps in a nick of time. The property in question was built by my deceased grandfather, and we will do everything we can to hold onto it.

If anyone could point out some basic steps, I would be very grateful.

Thanks,
Ben

You might be better off letting her leave the property to you in her will rather than gifting it to you.

 

[Zigner]

You might be better off letting her leave the property to you in her will rather than gifting it to you.

I suspect they are trying to avoid the house being sold to pay for her medical bills.

 

[BenZachary]

will versus gifting etc

Re : Medical Bills ... No, her medical bills are fully covered via insurance, not an issue.

Why have her put me in the will?
I thought that wills were subject to very high taxes.

 

[curb1]

Let her gift you the house. There is a lifetime gifting exemption for her that is over $5 million. Form 709 (IRS) would need to be filled out, but that is not difficult or most CPAs could do it for you. It is only a couple of pages, but does take some calculations. There would be no federal taxes.

 

[FlyingRon]

One downside of getting it as a gift is you take over her basis in the property which is probably pretty low. If you inherit it, it steps up to the value at the time of her death.

I'd be very careful with gifts of such assets. While you think she is entirely covered by insurance, such transfers may indeed disqualify her for medicaid services in the short term.

They can't seize your property but they may be able to get a lien against it so that they get their money off the top if you ever sell it.

 

[LdiJ]

Re : Medical Bills ... No, her medical bills are fully covered via insurance, not an issue.

Why have her put me in the will?
I thought that wills were subject to very high taxes.

Actually no, on the federal level its the opposite. If she gifts you the house then your basis is her basis, and if you eventually sell the house you will pay capital gains tax on the difference between the basis as the sales price.

If you inherit the house instead, you get a stepped up basis to fair market value as of the date of her death, which could dramatically reduce capital gains tax.

Rhode Island does have an estate tax, but the exemption is currently 1.5 million so that really isn't an issue for you either.

 

[curb1]

It will make a difference if the OP is going to use this as a rental, or a primary residence.

 

[Dandy Don]

Is there no outstanding mortgage on the home--does she own it free and clear?

Ask her if she has prepared a last will and testament--if she has and if she used a lawyer to help her do it, maybe she could afford this expense. But I'm guessing that she probably doesn't have a will yet. If she doesn't have a will, she or you may want to consider getting advice is to whether or not it is important that she have one made so that her assets will be distributed according to her wishes.

Ask her if she knows what her outstanding debts would add up to, approximately. Will there in fact be medical bills and other bills to be paid?

If you or she choose to use an attorney, that is acceptable, but a consultation with a certified financial planner might be less expensive.

 

[BenZachary]

Re : Property Gift from grandmother

Dandy Don, Ron, Curb, Ldi ... So much gratitude for your advice. This is a great great start for my research into the process, and has in part, alleviated some of my concerns.

The house is free and clear in her name. My grandmother has no debts at all, although very little in savings.
She has not yet prepared a will.

"Her basis is my basis" : I take this to mean that in the case of gifting the property that the assessment of the house cost would remain the same, while if she puts it in her will instead, the house would be reassessed to market value? I have a feeling that if it is reassessed it might go up in value, and create higher tax burden.

I would never sell the house in my lifetime, so in that capacity, should I be less concerned with capital gains?
I may occassionally rent the house for a month here or there to help cover my taxes. This would not be a primary residence, but I may make it my primary if that makes the most sense. I am a renter and own no other property.

Once again thank you all so much for your amazing advice!!!

Ben

 

[LdiJ]

Dandy Don, Ron, Curb, Ldi ... So much gratitude for your advice. This is a great great start for my research into the process, and has in part, alleviated some of my concerns.

The house is free and clear in her name. My grandmother has no debts at all, although very little in savings.
She has not yet prepared a will.

"Her basis is my basis" : I take this to mean that in the case of gifting the property that the assessment of the house cost would remain the same, while if she puts it in her will instead, the house would be reassessed to market value? I have a feeling that if it is reassessed it might go up in value, and create higher tax burden.

I would never sell the house in my lifetime, so in that capacity, should I be less concerned with capital gains?
I may occassionally rent the house for a month here or there to help cover my taxes. This would not be a primary residence, but I may make it my primary if that makes the most sense. I am a renter and own no other property.

Once again thank you all so much for your amazing advice!!!

Ben

You are mixing up property taxes and income taxes. We are discussing income taxes. You would need to consult someone local about property taxes. Although generally property taxes get reassessed when ownership changes, no matter how it changes.

Lets give you an income tax example:

Your grandmother purchased the house for 100k and spent 50k in capital improvements over the years. That makes her basis 150k. The house is worth 400k today.

If she gifts you the house and you someday need to sell it, then you would be paying capital gains tax on the different between 150k and 400k...about 37500.00, or more if the house appreciates more between when she gifts it to you and when you sell it.

If she leaves the home to you in her will, then your basis becomes 400k, and therefore if you were to have to sell your capital gain would be the difference between 400k and whatever the selling price is.

If you do not intend to sell AND you intend to make the house your primary residence, then getting it as a gift is not as problematic for tax purposes.

 

[FlyingRon]

If you do not intend to sell AND you intend to make the house your primary residence, then getting it as a gift is not as problematic for tax purposes.

Less problematic. Only $250,000 of the basis (for singles) is excludable. With a longly held piece of real estate, it is quite possible we're talking more than that.
But if you never intend to sell it, then it's likely not to be a problem.

Granny will need to file a gift tax statement on this (I presume we're talking something worth more than $15,000) but unless she has A LOT of assets (we're talking multiple millions) there's no actual tax involved.

If Granny is well off enough that she won't need medicaid services in the next ten years, have at it. It's still probably good to have an attorney handle the transfer: preparation of the deed, etc.
I'd also recommend you get title insurance. If you ever want to sink money into the property to fix it up, you'll be making an investment worth protecting.