Child Selling Property Where Parent Reserved Life Use
This edition of the Koldin Report E-Newsletter is part of a series on questions we received from our “contact us” form on our website about Elder Law, Estate Planning and Medicaid.
All prior newsletters are saved on our website. You can read them by clicking here.
My father signed over his house to his children 10 years ago and reserved a life estate. He is now in a Nursing Home and we want to sell the house. What are the Tax and Medicaid consequences?
When you sell the home, a portion of the sale must be paid to your father because he owns a life estate.
Medicaid has a required table that must be used to calculate the percentage ownership of the life estate which is based on the age of the life estate owner.
The portion that must be paid to your father is unprotected and would be considered part of his life savings for Medicaid eligibility purposes.
If the house was your father’s primary residence for the required time period before he vacated the house, then the portion paid to him for his life estate should receive the capital gains tax exclusion he would be entitled to for the sale of a primary residence.
However, the portion of capital gains paid to the children as the remainder owners of the house would be taxable and would not qualify for the primary residence exclusion.
Had your father transferred his house to a typical Irrevocable Trust prepared by the Koldin Law Center, P.C. rather than to his children, then the capital gains tax exclusion for the primary residence would have applied to the entire proceeds of sale.
For more information about Irrevocable Trusts, please see our website by clicking here.
At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options, including the advantages and disadvantages of Revocable Trusts and Irrevocable Trusts, along with other estate planning considerations including a Will, Power of Attorney, and Health Care Proxy. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
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