Q: My parents want to put their home in my name, have me sell it once my new home is built, then use the money from the sale to add a room to my new home so that they can live with me and my family.
Is there anything preventing them from doing this because of their ages and would any of these actions affect their Medicare benefits?
A: You need to know that if your parents will need Medicare benefits in the near future, the government has the right to look back on your parents’ financial history and determine if any assets were disposed of that could have been used to pay Medicare.
Medicare can look back at their finances for up to five years to determine what assets have been given away to avoid using those assets to pay for their health care treatment.
If your parents want to sell the house, they can. If they sell the house, they probably won’t have any federal income taxes to pay unless they have more than $500,000 in profits. (If only one of your parents owned and lived in the house as his or her primary residence, the limit would be $250,000).
If they transfer the house to you, you will have to pay federal income taxes on the difference between the cost of the home to your parents and the sales price of the home when you sell the home. That can be a substantial amount of money if the home has appreciated quite a bit over the years.
You should consult with an estate planner to evaluate your parents’ estate, see how much money they have in their house and figure out what kind of gifts they can give you to help you with the addition to the home.
You may find out that their estate isn’t as big as you thought or that there are better ways of helping your parents in their current stage of their life than the plan you’re currently contemplating.
Feb. 15, 2008.
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