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I’ve been renting out my Mom’s house since I had to place her in memory care about six years ago. I was also stuck in a rut wondering what to do about her hoard; when I researched comps for rental homes in her neighborhood, I had a vision and the lightbulb went off on top of my head!

I put a few calls out to property managers and set a date to have the place cleared out before the end of the summer, and the rest is history. I’ve been pulling in nearly 30 grand a year in rental income, and the house is now worth over half a million, no mortgage. I inherited the house two years ago when my mother passed away, and will side step inheritance taxes by “living “ in the house for the next two years and renting out rooms.
Clean it up, rent it out, then cash out in a few years after all the pandemic chatter calms down. Perfect compromise. I have taken over landlord responsibilities, but you can start out with a property manager to hold your hand for the first few years.
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igloo572 May 2020
Gems, your post reads that you are declaring the property as your homestead or principal / primary residence (The “living”) but it’s not and you are actually renting it out for 30k a year. Is that correct?

Filing a fraudulent homestead has serious consequences. The details on the discrepancy will surface eventually. Your tax assessment is based on that fraudulent filing and will be significantly less because it’s your home/ homestead / primary residence. Once the info surfaces the fines, penalties and interest will be placed on the property. If it’s assessed at 500k+, it will be a huge amount placed. And it gets retro’d, probably back to the date it was transferred to you via probate. Could take a while for it to surface but it will. Assessors office usually don’t do this on their own but either have a independent appraisal district that does tracings & appeals (Texas does it this way) or An outside contractor gets hired (basically its doxxing) and they get a % of the fines, penalties placed on the property from the assessors office.

You are filing taxes on that rental income, correct?
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As an update to this, the trust actually said I needed two letters to do anything with the house or property so I consulted an attorney before I started cleaning it out... and the attorney said to get two doctors letters. The doctors say that he doesn't have the ability to do informed consent and that I should make financial, health living decisions. I was shocked because to me that sounds like they are saying he's incompetent .... So anyway, I have no idea if it's enough to sell but it should be enough to clear out stuff and get it ready. I'll have to consult a title company or someone like that to make absolutely sure I have all they'll need to support my authority to sell. I had no idea that as trustee I had to do all this so I'm glad I asked this question and read through some of the situations. Ironically, dad now says it's OK to sell one day and then the next day says "it's off". So it's a bit of a crazy making time with him.
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Isthisrealyreal May 2020
Get that doctor to put that in writing! Then ask for a referral for that second letter.

That's your bum cover for selling.

Can I ask, does the subject keep coming up with dad or is something else bringing it up? When he says yes, leave it at that.

Or remind him that he said to sell and it is to late to stop the process at this point. Whether it is or not he needs a little help to stop going in circles.

Well done talking with the attorney and finding out what the documents say. Starting point established, time to get those letters.
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I am doing this RIGHT now. I have to, there is no money to pay for the long term care facility and I am having to dip into my retirement savings, which is a bad idea. I have complete power of atty, both medical and financial, and I recently had her will redone, showing that only she owns the house (my deceased dad was still listed as owner). I filed 2 ins claims, which were approved so some repairs can happen. House is a wreck. I am calling a junk hauler for next week and I may have to use them twice. Once house is empty, clean, and roof fixed, I plan to sell it to one of those WE BUY HOUSES. I do not know if there are any legal ramifications to what I am doing. I only know I cannot afford to keep paying all her bills. Medicaid will provide nothing as long as she owns an asset, her house. There is nobody else to help, there is no money.

Dismantling a life is hard work. Makes you really respect someone who organized their life. My mom is not one of those people.

My mom knows nothing about what I just shared.
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Isthisrealyreal May 2020
Lakin please do not sell the house under fair market value, this will effect Medicaid.

Have you actually applied? My understanding is that you can own a house, you just can't pay for anything.

Get a loan in place from you to mom so that you can recover your money from the sale.

Find an elder law attorney (www.nelf.org) and get this dealt with right away. You should not be financing her care from your retirement.
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Mary, can I recommend that you create a contract that pays you and your husband for doing the hands on clean out or hire some help.

Your siblings don't have a clue about what your responsibility is. It doesn't mean that you have to do slave labor to preserve their inheritance. Make this as easy as you can for you. That attorney could probably draw it up in no time and make it legal to protect you.

Great big warm hug! You don't deserve their hatefulness, but you are lucky to know where they stand now so you can be prepared for the ugliness to ramp up and have your ducks in a row to be as insulated and protected as possible. Don't be their doormat!
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Mary, can you get a specific POA for the house?

That's what I did to sell my dads property in another state.

The title agency should be able to provide the form.

(Sorry for so many responses, I can't edit my posts for some reason.)
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marydys;

"I'm still not understanding your logic (I've never heard of "life estate" and "remainderman" ) so maybe you are from Canada and we are talking about Michigan and California?"

No, I am not in Canada, nor Michigan or California. Where you live most likely will play no part in the sale (other than you need to travel to clean it out/fix it.) I had moved to the next state over from where mom's condo was, and it had NO impact as far as selling the place. One brother lives in my state, the other is about 1500 miles away (all 3 trustees.)

Before addressing the question about Life Estate, please either carefully read the POA doc or consult the atty who drew it up. Mom's didn't specify needing any "proof" although we could have gotten it. I used the POA to take over her finances, set up the trust account (she did have to see the EC atty and sign paperwork for the legal part of the trust and the Life Estate, but she was in very early stage and he determined she was capable of signing. The other docs, like POAs, had been set up years before and were sufficient.) Yours may indicate needing this, and it certainly can't hurt to have it in hand to use the POA. I was never asked for any "proof." Her POAs also did not say anyone could get paid for their "services", but when I said this to the atty, he said it also doesn't say I can't. You are the trustee, so unless any doc says no, you can pay yourself "reasonable" recompense. Consult the atty. Lastly, the EC atty told me I could sign ALL paperwork for the sale of the condo EXCEPT the deed. Despite her living in MC, having by then already forgotten about her condo and not knowing what she was signing, I HAD to have her sign that deed.

Perhaps you can explain what the whole "must be sold by x date" is in your situation. What you said usually falls under the Life Estate we had set up for our mother. What this does is put the house in trust (you indicate there is a trust), but allows her to live there for the rest of her life. Had we been able to keep her there until she passed, it would have stepped up the value and we would have had little or no cap gains to pay. Given her dementia and refusal to allow aides in, we had to move her. Hanging on to the place was costing too much money and although we considered rental, between hassle of being landlord (or cost of property management), RE taxes and condo fees, it wasn't worth it. In order to avoid cap gains for HER share, we had to ensure she was there at least 2 of the last 5 years, hence why I suspected his trust was a Life Estate.

When you said he had to live there for at least 2 of the last 5 years, THAT was the stipulation on the Life Estate. In your case, I don't know if this applies, but it does sound like it. The Life Estate IS a kind of trust. You need to find out if it is, because in that case only your father would get the break on cap gains. He could also get taxed on the net amount that went to him, depending on his income. Remaindermen are those listed on the trust who would "inherit" the place should your dad pass away. It could also impact his Medicare cost, one year only.

We went through this several years ago, and again, that stipulation of 2 out of 5 years really sounds like this is a Life Estate. You should, at the very least, contact the attorney who drew up the documents to check. If it is, the IRS has tables based on expected life expectancy, and it determines what % he and the "Remaindermen" get. Although we put ALL the net funds paid out by check to us back into the regular trust fund (separate from the house trust), it still resulted in cap gains for us. His share, even if the place were worth more than the exclusion amount, will be low enough that he won't have any cap gains, but anyone else on the trust will.

IF you find out it isn't a Life Estate, please post something so that others will know what this is and perhaps can benefit from the knowledge!
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Isthisrealyreal May 2020
2 out of 5 years is an IRS rule for determining whether you owe capital gains by selling an investment property versus your residence. It stops flippers from buying and selling without paying taxes.

Please scroll through, she has posted updates about everything.

It has nothing to do with a trust, unless it is written in to cover something.
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Based on reply from Isthisrealyreal to my query/comment, it appears that ANY residence has the sane requirement:

FROM https://www.irs.gov/pub/irs-pdf/p523.pdf

Eligibility Step 2—Ownership Determine whether you meet the ownership requirement. If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

Eligibility Step 3—Residence Determine whether you meet the residence requirement. If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion. If you were ever away from home, you need to determine whether that time counts towards your residence requirement. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone). 

However, my comments still might help anyone who has to deal with a Life Estate. Although we had set it all up years ago, I didn't fully understand all of it, nor was I aware of the tax implications, until we sold her place.

It never hurts to have MORE information than you really need! Also, see that link for more info - it does have more information, regarding things like being away for part of the time and physical/cognitive issues.
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marydys May 2020
Yes, any PRINCIPAL residence has this requirement. A vacation home isn't a principal residence and selling it would always be subject to capital gain. Anyway, the whole thing for us was better explained to me by the attorney. The way the trust read (to me, to my husband, and to my sister) was: I am trustee as well as POA so I could sell the house. Dad was no longer trustee so he couldn't sell his house either. It was in LIMBO because of a clause in the trust that said the trustee had no right to sell his house or his belongings, including his vehicles unless he had no ability to USE them. (and some specific information about the doctor needed to say). I told the doctors to please evaluate him. Instead they used their own language but basically said he was no longer competent. Hopefully that will be enough for the title company but, it's now kind of a non-issue, because if I'm able to get a contract with a buyer, I bet dad would sign it if they insisted (they shouldn't since he's incompetent)... but it will get done! FINALLY. I now am stuck working my butt off but at least there will be progress. The capital gain thing is because he hasn't been even living in that house or even in that state which is kind of a unique situation. And, if I can't get it sold by the deadline, it's probably best (as long as he isn't desperate for the cash), to get it rented and wait until step-up happens on inheritance... Anyway, this is progress... and I still am not sure how I got him to agree. He's so stubborn. He thinks, for example, that he can buy a house in CA and live there, and drive once he passes a drivers test. One problem at a time, though! Thank you.
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How about you go back and search for items that would be saved - legal documents, photos, etc. You could start the boxing up process for save and donate. Maybe take a lot of pics of furniture or other items and share with all of the others so family can claim items they might want (and agree to pay the shipping to get it, or come in person). You can label each item or start the boxing process for those things. There are probably many things that could be moved along now to work on the paring down work - old clothing, etc taking up room in the house.

Dad would still have his house even if he can't return and a lot of the hard work would have been started when the time comes to actually sell out.
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Invisible Jun 2020
Takes a lot longer than you think it will to do this. Great suggestion. It would be nice if a sibling or two met you there to help go through things. Sometimes it's fun to go down memory lane together and not because someone died.
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