Sometimes people have a child that they want to help become established in a home.
In some cases, rather than giving the child a down payment, or the like, there is a desire to simply transfer a house that the parent already owns to the child.
There are some issues that must be carefully considered.
First, even if all that is transferred is a down payment in cash, the gift may be large enough that a gift tax return may need to be filed.
Second, whether the gift is cash, or an actual house, it is important to remember that a gift to a non-disabled child will often render the parent ineligible for Medicaid. This can happen if an application for Medicaid is made within the look back period, which, in 2015, is a five year period after the date of the gift. If a Medicaid application is made within this period, and a period of ineligibility for Medicaid results, the period of ineligibility can extend LONG beyond the end of the five year look back period. For more information on this, a careful review of Medicaid rules that apply to a particular situation, conducted by a skilled elder law lawyer, may be very important.
Third, if there is a gift of a house, instead of a gift of money, remember that any mortgage balance that is still owing on the house will be accelerated. This means that the entire mortgage balance will become immediately due and owing in most cases, and must be paid off in full.
Fourth, if the gift is of a house, and if it is not the primary residence of the person giving the house, and if the gift is only a partial gift, then the person giving the partial interest in the house may incur capital gains tax. This can be particularly troubling where, because of depreciation, for example, the “sale price” that the child pays is less than the amount the parent paid for the house, but the transfer still results in capital gain to the person who is selling the house to the child, even though the house is being sold for less than full fair market value.
Another consideration may be that if the house is transferred to a child and the child’s husband or wife, and the child and his or her spouse then divorce, the gift that was intended to benefit the child may wind up being split between the two spouses. In some cases, this can happen even if the house was gifted only to the child, and not to the child and his or her spouse.
To avoid some of these issues, it can be very wise to meet with a skilled elder law, family law, and real estate lawyer well before the expected transfer to explore the options and possible solutions to pitfalls that may otherwise emerge unexpectedly.
Steven A. Heinrich
Divorce & Custody
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