Parents donating their houses

[jpgreenwood]

My mother is getting worried in her later years and wants to give her house to me and my brother. She doesnt want to have it taken off her if she ever had to go into care.
What are the complications of my mother signing the house over to me and my brother?
UK Inheritance tax?? Is this applicable if its not inherited?
Can she sell it to us for a nominal price?

I bet it's not as easy as it sounds?

[Grumpy Badger]

You'd really need proper legal advice but I'll chip in what I know. Please don't take it as gospel, though, it's just off the top of my head and would need checked out...

I believe if she signs it over to you she has to survive another 7 years for you to get around inheritance tax. If she were to die within that time you would be liable.

Inheritance tax only kicks in if the value of the total estate is over a certain amount... I've got the figure of £600,000 in my head but that would need to be checked. That figure would include everything... House, vehicles, jewery, money at bank, cash, investment portfolio etc.

[Tools]

You should check closely into the tax laws.. Perhaps a Trust may be the way to go..

In the US, a gift, which signing the house over would be, is restricted to 11,000 dollars a year per individual or it would be subject to an onerous "gift tax".. The gift tax is the same rate as the Inheritance Tax, but an inheritance can be quite high before the tax kicks in.. So, in the US it would be more beneficial to inherit rather than being gifted the house, depending on the value...

[rolexgiants]

Originally Posted by Tools

You should check closely into the tax laws.. Perhaps a Trust may be the way to go..

In the US, a gift, which signing the house over would be, is restricted to 11,000 dollars a year per individual or it would be subject to an onerous "gift tax".. The gift tax is the same rate as the Inheritance Tax, but an inheritance can be quite high before the tax kicks in.. So, in the US it would be more beneficial to inherit rather than being gifted the house, depending on the value...

Wrong... It's now 13,000.00 per year

[Lisa]

Originally Posted by rolexgiants

Wrong... It's now 13,000.00 per year

And it seems that it was $10k not too long ago.... if this topic wasn't complex enough, the laws change every year. Darn near impossible to plan ahead unless you plan for several different scenarios.

[rolexgiants]

Originally Posted by Lisa

And it seems that it was $10k not too long ago.... if this topic wasn't complex enough, the laws change every year. Darn near impossible to plan ahead unless you plan for several different scenarios.

I know this one very well... I have an idiot brother that gets a nice gift from me every year... And now I'm married... So he gets an additional gift from my wife as well

[rolexgiants]

Originally Posted by Lisa

And it seems that it was $10k not too long ago.... if this topic wasn't complex enough, the laws change every year. Darn near impossible to plan ahead unless you plan for several different scenarios.

Matter of fact... He was thrilled when I got married.... His yearly gift doubled..lol

[perpetualman88]

in the US your mother could sell the house to you and your brother for whatever you guys decide. the problem is the government will revalue the house based on their figures and charge you tax according to the market value of the property. Too bad your not in the US my fathers firm could have really helped

there are alot of diff ques that need to be asked and answered before a correct and informed choice can be made I would hightly suggest shelling out the $$$$ and consulting an accounting as well as a lawyer

[wantonebad]

Yeah, in the U.S. they just increased the time between putting property into a trust and liability for institutional care from 2 years (or was it 3) to 5 years. My mother is looking at long term care in a nursing home and we were too late to save her home. She's still at home but no way is she going to last 5 years. So all of her assets are going to be liquidated and she'll be put in a home at some point. My brother and I are in the middle of trying to find a way to pay for it short term to see if we can save her assets but it's not looking good.

[Lisa]

Originally Posted by wantonebad

Yeah, in the U.S. they just increased the time between putting property into a trust and liability for institutional care from 2 years (or was it 3) to 5 years. My mother is looking at long term care in a nursing home and we were too late to save her home. She's still at home but no way is she going to last 5 years. So all of her assets are going to be liquidated and she'll be put in a home at some point. My brother and I are in the middle of trying to find a way to pay for it short term to see if we can save her assets but it's not looking good.

Marc, I glaze over when trying to understand the whole trust/asset protection/long-term care issue. Are you saying that if your mom's assets were put into a trust, those assets wouldn't be considered part of her net worth and therefore she could become medicaid-eligible?

Off to google search... I could ask Mom's estate attorney but she's a bit flighty; I never can understand her explanations, and then she sends a big bill.

[wantonebad]

Originally Posted by Lisa

Marc, I glaze over when trying to understand the whole trust/asset protection/long-term care issue. Are you saying that if your mom's assets were put into a trust, those assets wouldn't be considered part of her net worth and therefore she could become medicaid-eligible?

Off to google search... I could ask Mom's estate attorney but she's a bit flighty; I never can understand her explanations, and then she sends a big bill.

Yeah I'm certainly not 100% myself but Medicaid will only pay so much, she does have some options but much less then a few years ago and the other issue is she's not very sharp these days but refuses to sign a power of attorney and is in DEEP denial. Difficult to be sure!

[Lisa]

Originally Posted by wantonebad

Yeah I'm certainly not 100% myself but Medicaid will only pay so much, she does have some options but much less then a few years ago and the other issue is she's not very sharp these days but refuses to sign a power of attorney and is in DEEP denial. Difficult to be sure!

It is surely complicated - and I see from reading our UK friend's posts the situation is complex no matter where you live. I would feel better if we had a better financial/legal advisor.... but in the meantime I'm trying to learn on my own.

Moral of the story: as a parent, I promise to be well prepared and to never to leave my kids in the dark about our finances when we get old. My poor sister and I had my parents' situation rather suddenly dumped into our laps when Dad died, as my parents were always very secretive about their money and never made plans for what might happen if one or both of them became incapacitated. Unless you really are out to get back at your kids for the grief they caused when they were teenagers, don't do this to them!

[Kokyuryoku]

This is an interesting thread. I've got to think about. Thanks.

Originally Posted by Lisa

It is surely complicated - and I see from reading our UK friend's posts the situation is complex no matter where you live. I would feel better if we had a better financial/legal advisor.... but in the meantime I'm trying to learn on my own.

Moral of the story: as a parent, I promise to be well prepared and to never to leave my kids in the dark about our finances when we get old. My poor sister and I had my parents' situation rather suddenly dumped into our laps when Dad died, as my parents were always very secretive about their money and never made plans for what might happen if one or both of them became incapacitated. Unless you really are out to get back at your kids for the grief they caused when they were teenagers, don't do this to them!

So very true. Alas, I'm in a similar situation now

[wantonebad]

Originally Posted by Lisa

It is surely complicated - and I see from reading our UK friend's posts the situation is complex no matter where you live. I would feel better if we had a better financial/legal advisor.... but in the meantime I'm trying to learn on my own.

Moral of the story: as a parent, I promise to be well prepared and to never to leave my kids in the dark about our finances when we get old. My poor sister and I had my parents' situation rather suddenly dumped into our laps when Dad died, as my parents were always very secretive about their money and never made plans for what might happen if one or both of them became incapacitated. Unless you really are out to get back at your kids for the grief they caused when they were teenagers, don't do this to them!

Well said Lisa!!

Now I feel like my mother is getting back at me

[316lad]

Originally Posted by jpgreenwood

My mother is getting worried in her later years and wants to give her house to me and my brother. She doesnt want to have it taken off her if she ever had to go into care.
What are the complications of my mother signing the house over to me and my brother?
UK Inheritance tax?? Is this applicable if its not inherited?
Can she sell it to us for a nominal price?

I bet it's not as easy as it sounds?

Some sort of Trust Fund is probably the way to go though there are lots of little details you should gather together before making a decision as to how to proceed.
Uk law on inheritance tax, gifts to children, what counts as assets in the house itself - all have a bearing when it comes to shifting assets within a family.
All these things need to be gone into in great detail. The law is not only hopelessly complicated but also subject to frequent change (as coalition gov's pander for our vote.)
It's not so important what the status of family holdings law and regulations are at present but how and when they're likely to change over the next few years and to know that, you must take advice.

Given the value of the average house here in the UK you would be best advised to hire a Financial Advisor who can walk you though the best way to proceed. The FSA authority oversees financial advisors and maintains industry standards. Don't deal with one who isn't a member and registered.

I've just been though all this with my mother and there's no way you can do it successfully (meaning not paying ridiculous capital gains, tax and other expenses) without a good financial advisor.

And no, I'm not a financial advisor.

[daveathall]

IIRC it can be given as a gift, but, as Mark has pointed out, for it to be immune from inheritance tax your mother would have to survive for seven years, I may be wrong but I believe that inheritance tax is £325K, I would urge you to seek advice from a solicitor though.

Some good info;

http://www.hmrc.gov.uk/inheritanceta...pt-gifts.htm#4

[DiamondJack]

Originally Posted by jpgreenwood

My mother is getting worried in her later years and wants to give her house to me and my brother. She doesnt want to have it taken off her if she ever had to go into care.
What are the complications of my mother signing the house over to me and my brother?
UK Inheritance tax?? Is this applicable if its not inherited?
Can she sell it to us for a nominal price?

I bet it's not as easy as it sounds?

You're right it's not as easy as it sounds or we would all be avoiding inheritance tax that way .

In the UK we have something called "gifts with reservation" so even though Grumpy Badger is correct in terms of the seven year rule, if your mother continues to live in the property and does NOT pay you a full market rent for her continued occupation, then, for inheritance tax purposes, absolutely nothing will have been achieved and the property will still be deemed to be hers as far as inheritance tax is concerned (which is 40% above a threshold of £325,000 for 2011/12).

However, people that have unwittingly tried this have, in fact, made things much, much worse.......since for inheritance tax, there is no saving.

But for capital gains tax (CGT), which would be exempt as your mother's main residence, suddenly becomes taxable on you as the owner of a second home at 18% for a basic rate tax payer and 28% for a higher rate tax payer (determined by adding the gain from the date of gift to your income in the year the property is sold).

So effectively, you still have inheritance tax to pay....AND you also have capital gains tax to pay when the property is sold........ Not particularly clever planning....

[Welshwatchman]

The "in care" scenario is one to read up on.

Local authorities have cottoned on to gifts and transfers prior to an individual entering a care home.

http://www.lawsociety.org.uk/product....article#5_1_3

[jdc]

Very interesting especially Diamond Jack, I was not aware of the capital gains situation if a person still lives in a property
Just to add if a partner dies and wills the estate to a partner then on the death of the latter inheritance tax can be rolled up into the two allowances 2 x £325k. This goes back some years. May not be applicable in your situation.

[Lisa]

Worth mentioning - every family's fear is for Mom or Dad to have to go to a nursing home. There are creative ways to qualify for Medicaid, but bottom line is that a Medicaid-approved nursing home would be a grim last resort. For now, we've hired an agency to stay with Mom several times a week, and at this point it's much less expensive than a nursing home. We'll increase the number of days as necessary, and re-group/re-think as her needs change.

[fusionstorm]

I'm actually thinking of buying one of the properties my mother owns, rather than taking title of it through her living trust. The property in question has some significant deferred maintenance, and also happens to have the house next door in the midst of a short sales transaction. I think I have a reasonable shot at being able to justify the acquisition cost being lower than the current assessed value based on current comps along with the appraisal, which would save me on annual property taxes going forwards.

Curious if anyone else has done something similar to the scenario above..........

[GolfPunk]

Originally Posted by jpgreenwood

My mother is getting worried in her later years and wants to give her house to me and my brother. She doesnt want to have it taken off her if she ever had to go into care.
What are the complications of my mother signing the house over to me and my brother?
UK Inheritance tax?? Is this applicable if its not inherited?
Can she sell it to us for a nominal price?

I bet it's not as easy as it sounds?

Dont get mixed up between the rules on IHT and long term care, unless the estate is over £325000 (or £650000) if your father is still alive, there will be no IHT to pay. If it is over this, then it must be out of the estate for 7 years.

Long term care is different and requires a solicitors assistance, as there is potentially stamp duty if it assigned over to you. The solicitor will explore changing ownership to Tenants in Common etc.