Q: For health reasons, a father wants to transfer full ownership to an adult son and daughter effective immediately.
There is a 2nd adult daughter that he is excluding. How can he do this? Will a quit claim deed suffice? I believe the house is free and clear. Hispanic family but full citizenship. Please advise me what to tell him or where I can send him for legal advice. He is definitely low income.
Don’t gift away large assets!
This is all about your tax basis in the asset. The tax basis is the amount the IRS uses to figure out your profit when you sell, so they can tax the profit. Usually, this amount is the purchase price.
If you give someone an asset, you also give them your tax basis (which is a bad thing). If I paid $100,000 for my house many years ago and now it is worth $1 Million, then there is a $900,000 gain waiting to be taxed when I sell (at maybe 20%). If I give you the house, I also give you the $100,000 tax basis (my purchase price) and when you sell the house YOU will have to pay the tax on the $900,000 gain.
What you want is to pass the house through inheritance (a Will or Trust). When I pass the house to you after my sad and untimely death, then your tax basis is NOT my tax basis. Your tax basis is “stepped up” to the current value ($1 million in our example) so that no one ever pays tax on that $900,000 gain (which is a good thing for you; the government would probably just blow the money on something stupid).
Also, for older folks, giving away a house will make them ineligible for Medi-Cal to pay their nursing home costs for the next 30 months. If they keep the house as their residence (even if they are in a nursing home) and put it in a Trust (any kind) then the house will be protected from Medi-Cal wanting to get paid back.
Yelena Gurevich agrees with this answer
A: It’s almost always better to give real estate to children through a trust at death than to give it to them during the parent’s life because the taxes will be so much higher. If your home has not gone up in value since you bought it, or you have a high tax basis on the home, you can weigh the cost of paying capital gains taxes. Try to find a senior legal services center or other pro bono legal clinic in your area.
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