Me (with crazy mom) here again.
I know the answer will be to see (probably an elderlaw) attorney which I will do but seeking insights before I do that.
Three years ago, my mom moved from the home she and my deceased father lived in for sixty years. I wanted to buy the house but for some crazy reason she has not wanted to sell it to me . I think she thinks selling it to me is not really getting rid of it. I said fine, sell it, but then she wants me to do all the work in prepping house for sale and working with realtors.
I honestly was not crazy about doing that as I wanted to buy the house, why should I do all the work to sell it to someone else?
Now, I am investigating and found if she has not lived in the house at least two years of the prior five, which about now, she has not she does not qualify for the $250K capital gains exclusion. The house has not been an income producing property, just vacant.
Having to pay capital gains on that (they probably paid 12K for the house) makes me ill.
I also read if her total income is less than 41K (which it is if we keep her RMD to the minimum) she does not pay tax on capital gains anyway, though my brother says thats only if she gets the $250K exclusion
Anyway, I know will have to talk to a lawyer, though really I cannot even do that for a property I do not own. She has mild but worsening dementia. My brother thought we should try to get her declared financially incapacitated, which I think she is, but thats a hard case to make.
I do have POA, but can I really sell the house with POA? Especially< could not engage in selling it to me?
I asked her about these laws regarding the one out of five year exception when determining the $250K capital gains exemption. What defines moving into care? She said that is fuzzy, its not like a solid line of if her situation is a care situation as she is in a senior facility. Also said that whether $250K capital gains is added into taxable income or completely separate can be fuzzy. She (rightly guessed, my original training) was as an engineer as I wanted black and white answers on everything and they dont exist in this area. She said on the tax treatment talk to the CPA.
She did say if we were worried about cost of maintaining a vacant home, as POA I could rent it out without my moms knowledge. I said once she finds out the you know what would hit the fan. My brother, calling in from North Carolina jumped in and said, lets do that, we will deal with the consequences later. Her is view is she is mentally ill and gets mad no matter what so we may as well investigate this route.
The attorney acted like she would not advise us hiring her as there wasnt much more other than we talked about she could provide value for. Maybe thats good on her part, I dont know
Kind of left feeling a little better but not completely satisfied.
Maybe will look for a consultation with another attorney.
On a separate track, regarding cost basis of home, I do understand from people here and the CPA the cost basis is not what they bought it for in 1955 but half the market value when my dad died in 2018. So that makes quite a difference. Also, as I did know, we can add improvements, which in this case could be finishing the basement, adding a deck, adding a new furnace and A/C (twice) and many things Problem is I would not know where to look for receipts if they still existed. I guess there are methods where you can assign reasonable values to these kind of things.
Being in the role of Conservator, with a prior POA, my input on any self-assignment of estate property - as advised by the firm I'm working with: You have to use the current fair market valuation, period. That would mean that you'd have the home appraised at current value, including all repairs, and that is what you pay the estate for that property. Anything else is not on par with fiduciary duty as POA of an estate.
I would very strongly advise that you not do anything to 'fudge' the numbers because you're answerable to standards as an acting fiduciary and there are innumerable laws protecting the estates of the elderly, there are criminal consequences for 'taking advantage' of an elder.
If your mom is competent, you cannot act without her full knowledge and consent. If not competent, she's vulnerable and your legal duty standards are heightened.
It's true that when in-care, the issue of 'domicile' is somewhat fungible because a domicile is defined as full living facilities, such as full kitchen, etc access and that's not always the case in some ALs and certainly not the case in a SNF. That's where an elder tax planner or advisor may be of help. The attorney whom You consulted may have sensed doings that blur the lines and doesn't wish to be involved.
Proceed with caution and full awareness of the parameters of fiduciary duty in all proceedings involving estate matters.
With my parents' properties, I paid for all maintenance and a few minimal repairs prior to the sales with estate funds. I also paid for a Home watch company to come in monthly on the out of state home to keep everything in good working order and I maintained the insurance, a home warranty policy and a 1 million balloon policy in case of something catastrophic occurring that would've damaged the primary home.
When I did finally sell it, after an estate sale to clear out what I chose not to keep and also the bequests (had all of that shipped up north and placed in storage), I worked with a very good agent and had a cash offer for ask within 72 hours of posting the sale. All proceed monies are going for Mom's care.
My parents house was in a very sad state. Very few upgrades were ever done and the maintenance was minimal. So with that in mind we cleaned out the house and sold it as is. It sold very fast at a good price. That sale sustains my parents in AL.
If not, I’d be really cautious as to doing & paying for anything personally, like anything at all, on the house to make it market ready. Costs can easily spiral up. There are things you might can do ahead of a spend to lessen this becoming a problem.
As your seeing an attorney, I’d ask them as to doing a Memo of Understanding or some other document (maybe Promissory Note?) as to how to possibly deal with you being paid from the Act of Sale $ rather than mom paying you from her proceeds afterwards. Medicaid tends to look at whatever we do or spend on our elders as done 100% out of a sense of familial responsibility and with zero repayment. Should mom repay you it looks like gifting. Really if you can draw up something now to lessen that from happening it will be very much a good thing.
also if moms house tax assessor “value” is whack, try to get it appraised before you ever do anything to it or put it on the market. If she has done what lots of elders do….they don’t really pay attention to the tax bill…. So it way higher than it’s realistic value. Often Their property taxes are low or fixed so having the place valued at renovated comparables hasn’t been an issue. But it will matter should Medicaid get involved later on as they fully expect it to be sold at close to that incorrect assessor value.
Sometimes it’s just best to sell “as is”. Realtors need to truly understand that this is what it is going to be; otherwise they will lean on y’all freshening & fixing up the place. $$$!
Talked to a paralegal at and elderlaw firm, thanks to recommendations here, and he is setting up a half hour free call with the actual elderlaw lawyer, where I can discuss all these financial and her anxiety/dementia issues
Even if I did have to pay if it could buy me an escape from or better management all this well worth it
I would never expend money on the house to get it sale ready but she wants me to do work bwhich I could otherwise do, but mad that I would have to do said work when I want to buy it. Why not just sell it to me and i will take care of it, almost like an ugly house buyer only I would pay more
buy and sell property on their behalf, but some POAs aren’t like that.
So only if your State allows for LBD can it be done.
The ownership stays in the elders name (for everything eg tax assessor info, insurance) till they die then transfers outside of probate to whomever named in the document. So as it technically falls outside of probate for asset transfer so in theory outside of Medicaid estate recovery (should Medicaid be an issue).
one issue with them is that it can become a really sticky as to who is responsible for all the costs on the property. Property still owned by elder, it’s their tax bill, it’s their homeowners insurance policy. Still in their name so they are responsible for the upkeep, maintenance etc. Elder could live 10 months or 10 years. Elder could rescind the deed too, or those named in it predecease the elder which can be a hot mess to deal with. There was someone on this site who had one with her sister…. Mom went into a NH & on Medicaid so mom had zero $ to pay anything “house”; the sister had drug issues so she had no money; it all fell to the responsibility sister (& her Saint of a husband) to do & pay on all on the moms old house and for almost 3 years. Sissy would occasionally go over & use it as a party house too. Nothing but fun. MERP still sent out their paperwork too. She had a probate attorney deal with MERP and do all the courthouse filings; it got sold and as per the LBD it was a 50/50 spliy. Drug Sissy got her 50% as that is what the Deed stipulated.
it sounds easy but it can be cumbersome unless that elder dies pretty quickly after the LBD is done.
My mom has assets, but in managing her assets I keep her income as low as possible, basically her SS and required minimum deductions on her investments which keep her income low and covers her expenses. If needs go higher than that, we take money out of her savings on which she may no RMDs.
Again, maybe misunderstanding.
Other posters are correct you will get a step up in basis if you inherit the house after Mom passes. Your timing on whether to sale now or later will depend on if you think the house is a good investment as the house will have some level of continuing expenses and maintenance.
Also talk to the lawyer about the Medicaid rules if that is an issue as I do not know them at all.
Maybe you could move in and rent from her?
I took her to a lawyer once to do a trust, and he would not do it for her as he said she lacks "testamentary capacity." I said she is not as nutty as she sounds, just that her uber hyperness makes her sound that way
He said he is not making an assessment of her medical or psychological condition: as a lawyer thats not his wheelhouse
He just says he cannot feel assured he understands her wishes or that she understands what he says in terms of her wishes on a trust.
Folks who are mentally ill WITHOUT dementia can lack testamentary capacity.
https://www.investopedia.com/articles/tax/09/property-sale-installment-payment.asp
Who inherits the house when she dies? They receive a step up in basis when it passes to the heirs.
You use mom's funds to visit an eldercare attorney, not yours. The eldercare attorney will see the big picture and will advise you on how to manage all the moving pieces.
My mom's taxes were quite low after she moved to a facility because much of the cost qualified as a medical deduction.
https://finkrosnerershow-levenberg.com/section-121-exclusion-of-capital-gains-available-if-nursing-home-resident-resided-in-home-1-of-last-5-years/