1. Eligibility for Medicaid.
Many parents believe that transferring property to their children will help them get long-term medical insurance benefits under Medicaid. However, in most cases, this qualification does not exist. If the applicant applies for Medicaid to obtain long-term medical insurance benefits within five years after the property is transferred to his children, Medicaid will consider the gift eligible for inclusion in the Medicaid program.
This will cause the applicant to be unqualified for a period of time. The theoretical basis is that this property could have been used to pay personal medical insurance. Dean said that in fact, the house may not be included in the asset evaluation. For example, if the applicant transfers his property to his spouse or children who have lived in the house for at least two years and provided necessary care, the five-year rule will not work.
2. Property preservation
If the value of parents' property is within the tax exemption range allowed by the IRS or the state tax authorities, it is not appropriate to transfer the property for wealth preservation or tax avoidance. In the case of applying federal gift tax, the tax rate may be as high as 40%, and state gift tax may also be paid. If the house is part of the normal inheritance, the tax burden is likely to be much lower. Parents who want to pay less taxes can sell their property and share the proceeds with their children.
For married couples, the first $500,000 (about RMB 365,438+065,438+00,000) is exempt from capital gains tax, while for single taxpayers, the first $250,000 (about RMB 654,380, 560 yuan) is exempt from capital gains tax.
The transfer of the house also makes people lose the choice of reverse mortgage. When making a reverse mortgage loan, the owner borrows money with the property rights of the house as collateral. According to the agreement, the borrower can continue to live in the house, but when the house is sold, the borrower moves away or dies, the loan (and accumulated interest) must be paid in one lump sum.
3. Large real estate and trust assets
It may be a good idea if the transfer can reduce the parents' property to the point where they don't have to pay inheritance tax. This is the way to keep most of the assets for children, even if they later decide to sell them and pay taxes. If parents want to transfer their property, but want to continue living in that house, it is recommended to take additional legal measures. One option is to establish a "living legacy" under which parents will pay their children a "fair market" rent.
If you don't pay the rent, it will be considered that your parents have "reserved interests" at home. Saarvo said that in this case, the IRS will consider that there is no transfer and decide to include the property in the scope of inheritance tax collection. It is recommended to seek legal help when making such arrangements.
Another option is to apply for a qualified-individual-residential trust, allowing parents to transfer their houses to their children through trust, which can greatly reduce the transfer cost of inheritance tax and gift tax. It also allows parents to live in this house for a predetermined time.
Under this arrangement, if parents live in the house, the gift tax levied at the time of transfer can be greatly reduced. According to the length of time parents plan to live in the house, the taxable value of the house gift can be as low as 25% of the current fair market price of the house. All appreciation after property transfer is tax-free for the trustee and children.
Parents who own a lot of real estate can also give or sell their houses to defective grantors for trust. The taxable value of the house will be frozen, and any appreciation of the parents' property before their death has nothing to do with their property. Any income earned by the trust fund should be taxed by the grantor, but by giving or selling the property to the trust fund, the grantor immediately reduces the value of its property, and all the value-added parts of the property are tax-free for the trust beneficiaries.