Gratis Crib?

2 Aug 2022 · 1 min

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0:51

Jerry Taylor explains why an elderly mother's decision to gift her house to her children five years ago backfired. The transfer dodged Medicaid's asset recovery, but the children inherited her original cost basis instead of a stepped-up basis, meaning they'll owe capital gains tax on three decades of appreciation when they sell. A will or trust would have avoided this tax bill entirely.

Chapters

All right, let's switch things up. And today you be the lawyer. You tell me what's wrong with this picture. Listen up. This is a true story. A mom has 3 kids, owns her home, bought it 30 years ago. When she's in her late 80s, she gives the home to her kids, puts their name on the title. That was 5 years ago. Mom now needs long-term care and Medicaid benefits. Kids now want to sell the home. Here's the question for you. Are the kids going to run into any problems? I'll give you 2 seconds. If you said Medicaid's going to come after the home, you're wrong. They've owned it 5 years and it's now exempt from Medicaid. But if you said capital gains tax problems, you are right on the money. Since the kids received the home as a gift, they'll have to pay capital gains tax on the increase in value over 30+ years. If they had inherited the home through a will or a trust, they'd be paying capital gains of zero dollars. Just follow me so this doesn't happen to you.