Answered a question 11/11/2010 at 11:41 am
Your question can not be answered on-line. I would say in short, if you have enough money to buy your parents house then you have enough money to speak with an "Elder Lawyer" do not go to a local lawy
...Read MoreYour question can not be answered on-line. I would say in short, if you have enough money to buy your parents house then you have enough money to speak with an "Elder Lawyer" do not go to a local lawyer. Things to consider are:
Health of parent, other assets, Set up values, capital gains, LTC, 5 year look back, medicaid penalties, child caregiver rules.
Instead of spending your money maybe consider looking at putting the house in a trust outside of the estate.
You goal should be to protect the home from creditors and to not loose any of their or your tax advantages. If you purchased the house it could be a legal asset for any of you or your families creditors, could be split in divorce, or if you are sued it would be considered a asset. So therefore your parents could be at risk of being legally removed from your house you now own! Look I could go on here, but you really need to sit down and speak with an elder attorney. I am not an attorney but I am a financial adviser for the last 25 years. And have made it my job to research the best way to transfer wealth to the next generation. All I can say it depends on your individual goals and each situation is a little different.
The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away. At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom's estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.
Financial Advisers accomplish the best of both worlds. The home can be protected and tax advantages will not be lost. But, there are even more potential benefits. Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce. Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care. In other words, some of the asset can be used for care but not all of it need be consumed.