Episode Transcript
[00:00:00] Speaker A: Did you know there's at least three reasons why you should never take a deed from your parents for their house? Just do not ever let your parents gift their house to you.
Three biggest reasons. Number one, gift taxes. If they give you a house, it is probably worth over $18,000. So you're going to have to file a gift tax return that costs money. You may not have to pay any gift taxes, but you still have to file the stupid return. Number two deals with taxes as well. Because if your parents just give you a piece of property, just like if anyone just gives you a piece of property, you now own that piece of property at their basis. So if your parents bought that house in 1970, whatever, for $20,000 and it's worth $2 million today, and they just gift it to you, guess what? You just took that house at $20,000. So this means that when you go to sell it, you will have to pay capital gains tax on the difference between $20,000 and whatever you sell it for, which is a lot of money. However, if, if your parents die and you get that property when they die, you get what's called a stepped up basis, which means now you take that property at the value on your parents date of death.
So that if the property is now worth $2 million when they die, on the day that they die and you sell it for $2 million, you owe no capital gains tax on that sale. You may still have other taxes you have to pay, but at least you're not going to have a capital gains between 20,000 and 2 million.
Another reason, the final reason I always throw it out there, is because you're going to lose homestead protections. You're going to lose the homestead cap on valuation and you're going to lose the homestead exemptions as soon as they transfer that property to you, even if you still live in the house. So even if you still live in the property with your parents, number one, that's a little sad. But number two, you are going to take that property. It's a change in title. So now they're going to rip off all of their exemptions, homestead exemptions, widowers exemptions, disabled veterans exemptions, whatever they may have that are keeping their taxes low, those all go away. The valuation cap goes away, comes up to present day value, then you can put your cap back on because you now still live in the property, but you still lose all of those savings. And then the final reason is Medicare, Medicaid, for a nursing home. If your parents just give you the property and it's within a certain time that they have to go into the nursing home, they may have to claw back the value of that, and then they are denied Medicaid coverage until the value of that property would have been spent down. So now you have to go sell the property to raise the money to pay for mom and dad's Medicaid to pay for their nursing home care. So those are the big reasons not to do it. So you may be asking, so what do I do if my parents want to avoid probate and this is really the only asset that they have, they have their house. That's their biggest asset. That's usually a lot of people. That's their largest asset they have when they die. And, and they don't want to have to go through probate even to just do a petition to determine homestead. They don't want to bother with that because that takes time, that takes money.
So what we typically recommend in that case is you do what's called a ladybird deed or an enhanced life estate deed. With that, your parents convey the property from themselves to themselves for the rest of their life. Then they reserve the right to lease, sell income, or convey, do whatever else they want to do with that property. They are free to do that. However, inside the deed it says as soon as your parents are gone, it passes to whomever they have named as the future owners, the remaindermen on the deed, that is who will get the property automatically in the blink of an eye when they're gone. You don't have to go through probate. You don't have to worry about capital gains. You get the stepped up basis in taxes. You don't have to worry about gift tax. You don't have to worry about all these other, other things that I talked about. You just take the property immediately. And if you need to, you, siblings, everybody else who got this property automatically in the blink of an eye when mom and dad passed, you can take the property, clean it out, sell it, take the money and go have a great time celebrating mom and dad's memories. So that's my advice when it comes to what to do with mom and dad's home. Definitely don't take it while they're alive. It's just not a good idea. Take it in an enhanced life estate or what we call a ladybird deed, and your life will be so much easier in the long run. If you got any other questions, give us a call. I'm Joe Siegel, your real estate and asset protection and estate planning lawyer here in Orlando, Florida. If you need us. Call us.
[00:05:26] Speaker B: Thanks for listening to this edition of Trust this. If you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.
