Joint Tenancy with ROS tax implications/basis

[Amd813]

If there is a father with three daughters who currently wants to include the daughters on the deed of his home in an effort to avoid Probate down the line (Trusts are not an option), what would the tax implications of a Joint Tenancy with ROS be? More specifically, the daughters would not be paying any consideration for their interest in the home, so would there be a gift tax implication? Also, down the line, after the father passes (because the intent is purely for dad to live in the home for the remainder of his life), would the daughters receive a step-up basis for the home? In the tax world, would a JTROS or Life Estate make more sense for this transaction? Any advice is appreciated!

[pk]

@Amd813  recognizing  that there is a lot of unknowns in the post and if the main goal  are to 

1. avoid probate ( time , expenses, privacy etc. ) ;

2. pass the asset to the daughters ( or their progeny );

3. achieve a step-up to FMV  so as to avoid / mitigate Capital Gain at disposition by daughters/inheritors; 

and 

4. full use rights by the father till his last breath

then a life-estate with or without trust is the way to go.  To put them as co-owners  probably is not the best vehicle to achieve all your goals.

Additionally I am not sure I understand why a trust is not  desirable here.   Also is there a mother involved in this ?   Which state is the property in, and is the father a resident of that state ?

If there is privacy concerns on any of the questions/ answers, you can always PM me  -- just NO PII  ( Personally Identifiable Information )

That is my two cents.

pk

[VolvoGirl]

It’s usually not good to put them on the deed.   Then it’s a gift and they won’t get the step up in value instead of inheriting it.   Your cost becomes their cost.  

[Amd813]

Hi @pk,

You are correct on the main goals. The cost of the trust is the issue, as well as the client just seems to be put off by the concept. Mother is deceased. Property is RI and father is a resident. 

My only addendum to this is also a goal of Medicaid consideration. RI is a probate only state for Medicaid Estate Recovery, so both a L/E and JTROS would protect the house from Probate, therefore shield the home from Medicaid Estate Recovery. However, with JTROS, and the father living in the home as a primary residence, it would be an excludable resource from Medicaid, SHOULD he need Long Term Care (not an issue as of now).  Life Estate is a bit a of a question mark in that area, so it depends. 

As a 'tie-breaker' of sorts- is either better in terms of gift tax implications?

I appreciate your input!

[pk]

@Amd813 , agreeing with comments by my colleague @Anonymous_ , I would just to  say the following:

(a) need to distinguish between  " spend down" and "recovery". 

(b)  L/E ( i.e. retaining the  "use rights only") has the benefit of "step-up" and thereby shield the beneficiaries from Capital Gains tax , especially  if the transfer is through a "gift" or "sale equivalent"

(c)   Joint ownership in its different forms ( and depending on the state laws)  may  not allow "step-up" of the whole asset -- in worst case would ONLY be available to the  decedent's portion.  Thus the other owners  may  be exposed to  Capital Gains tax  ( the quantum  dependent on exact facts and method of transfer)

(d)  This being the main residence of the father ( donor/seller/?? ) it would be immune for inclusion  for purposes of "spend-down" i.e. for eligibility for Medicaid.  

(e)   There is anecdotal  evidence / suggestion that in some cases Medicaid has forced/ strongly suggested  liquidation of  main residence since the "patient" is not expected to ever be able to go home ---  " Hospice" situation.

(f)  Post  passing of the "father/patient" Medicaid ( and depending on exact situation and facts ) may  use  recoveries  ,  especially if the Estate is sizeable .    Obviously in such a case a complete disposition of the residence  ( gift , sale etc. ) would preclude any recovery procedure -- a person's debt generally is extinguished  post probate (i.e.. does not pass on to inheritors) but the debt(s)  is/are dealt with before  distribution to inheritors..

(g)  Gifts  during life have no tax implications -- just documentation.  But settlement / reconciliation  of Estate/Gift tax is  done  at probate   and before distribution of assets to inheritors.

I am not an expert on this area of taxation  and  therefore  suggest  a discussion with an elder / Estate attorney.  I recognize a trust set-up is not cheap ( I just did my own ) .  You can do a lot of research on-line  ( and lot of the hype is not true ) at sites like Nolo or similar.

Is there more I can do for you ?

pk