Estate being gifted to children

by Susie

My Mom of 86 years old is selling her home. Can we take out a loan and buy it from her, and then she in turn would gift us 13,000.00 per year from the sale of her home?

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Jul 13, 2010
Complicated Issues -- Consult With an Elder Law Attorney
by: Gabriel Heiser

Yes, certainly you can purchase the house from your mother and she can forgive portions of the debt each year. The $13,000 limit is only important if you are trying to avoid federal gift taxes, which I doubt would be an issue in her case, since there is a $1 million federal exemption for gift taxes. (However, there likely will be paperwork that must be filed each year with the IRS to claim this). Tennessee is the only state that would tax a gift of more than $13,000, so again, unless your mother lives in Tennessee, you would not have worry about gift taxes.

Note that forgiveness of a debt is treated as taxable income for income tax purposes, so be sure to consult with your accountant as to that aspect.

If your mother may be applying for Medicaid coverage of nursing home expenses someday, be aware that some states would treat a promissory note as an exempt asset if it is structured properly, which would be a big benefit to her. In effect, the value of the loan would not be counted as an asset of hers, and the payments to her would be counted only as income. If she made gifts to you, though, that would cause a penalty period if she had to apply for Medicaid within 5 years of making the last gift. I discuss this more in my book Medicaid Secrets.

As you can see, there are some complicated issues involved in your idea, and I recommend you consult with an elder law attorney before doing this!

Jul 15, 2010
Gifting home or puchasing dirctly/gift payments
by: Anonymous

But if she is gifting us the house, would that be better way to go, rather than purchasing the home though financing it from a bank, and making house payments from her gifting us back the house payments?

Jul 16, 2010
Gift of house
by: Gabriel Heiser

Sure, your mother can sign a deed transferring ownership of the house, but then she must be sure not to apply for Medicaid within 5 years, since that gift will cause a very long penalty period (the more valuable the house, the longer the penalty period). If you're not concerned about nursing homes or Medicaid, then unless you live in Tennessee (which has a state gift tax), this should not be an issue (the federal gift tax exempts lifetime gifts that, in total, are under $1 million).

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