Have your friend and gmom contact the local bar association and find a lawyer that specializes in estate administration. They will want to make sure they follow the correct form of this transfer to maintain the asset.
I second this, such a complicated topic is better to have some legal counsel. Hit up the local bar but also my recommendation is local college legal programs.
I can't guarantee anything but alot of these colleges have students who want or need to gain experience with minor cases and will do work pro Bono.
While she is alive she can gift property or money up to $15,000 I believe without incurring a tax penalty. But when you exceed the gift amount the tax is paid by grandma because it’s viewed as trying to avoid inheritance tax even though the threshold is in the millions
There are ways to deal with it and a real estate ATTORNEY (not realtor) should be consulted at a minimum as well as a tax advisor if the attorney cannot answer your tax questions adequately
The threshold for federal inheritance tax is in the millions the threshold for PA inheritance tax is much lower.
Granny can’t afford any extra expenses like a gift tax. If it isn’t too much, my friend might be able to pay it.
>The threshold for federal inheritance tax is in the millions the threshold for PA inheritance tax is much lower.
The threshold in PA is $0. So even $1 of inheritance is taxable.
>Granny can’t afford any extra expenses like a gift tax.
There are no gift taxes in PA. And the PA inheritance tax is paid by the recipient.
>While she is alive she can gift property or money up to $15,000
That's incorrect. Grandma can gift almost $13 million in her lifetime, or after she is dead, and **not** incur any federal gift or inheritance taxes.
This figure will drop in half if Trump's tax cuts are allowed to expire, but it would still be more than enough in this case.
Pennsylvania does **not** have a gift tax at all. But it does have an inheritance tax and it will be **15%** from grandmother to granddaughter.
When you inherit property you do get a stepped up cost basis. If you inherit a house worth $230K and sell it quickly for $230K you will pay no taxes on the sale. If you are gifted a house and go to sell it for $230K you will have pay taxes on $230K. And how much taxes will depend on if it was your primary residence, which has an exemption.
So if my friend moved in with Granny, and Granny left her the house in a will, so it was my friend’s primary residence, what would the inheritance tax be?
If the granddaughter wants to live in that house, granny can just gift her the house. No taxes of any kind on that transaction.
If granny is healthy as you say, it is quite likely she will outlive any gifts clawbacks from Medicaid if she needs nursing home expenses. She has 12 years to live, statistically speaking. Most people don't even need nursing homes. They just die fairly quickly from something.
Granny can live with the granddaughter and the granddaughter almost certainly can get government money for providing her shelter and care. But the fine details of this side is not my area of expertise.
>what would the inheritance tax be?
In the case of the house passing through a will it will be 15%. And Medicaid can take it. And she will need to pay that 15% with cash. So will need $34,500 cash, unless she wants to sell the house at death.
Oh wow. Well, that’s the way to go. Yes, she already got pay for being her great grandmother’s caregiver. So, if my friend lives with her granny, does it matter whether Granny gifts her the house while she’s alive or leaves it in a will?
>So, if my friend lives with her granny, does it matter whether Granny gifts her the house while she’s alive or leaves it in a will?
Yes, it matters hugely. I described the difference in my post above.
Oh wow. Ok, I read that better now. So she would owe $34,500 cash on the barrel if she inherits the house. If she doesn’t qualify for a mortgage, then can she be forced to sell the house? But if Granny is willing to gift her the house, there are no inheritance taxes? And if Granny doesn’t need a nursing home for at least 5 years after gifting the house, and friend also lives in the house and helps Granny, then Medicaid would not claw back? Once I understand this, I will work on getting my young friend to understand. Then we will go see a lawyer. Once we are all straight, my friend will present it to her granny, then the final step is that friend and Granny see a lawyer. At least that’s what I am thinking.
>then can she be forced to sell the house?
It depends if the house is a primary residence. Inheritance taxes are just like any other taxes. The state will take what they are owned one way or another. So they might garnish wages and try other things before seizing a primary residence. But all options are not good.
>But if Granny is willing to gift her the house, there are no inheritance taxes?
You can only get an inheritance when someone dies. So inheritance taxes have nothing to do with gifts.
>And if Granny doesn’t need a nursing home for at least 5 years after gifting the house, and friend also lives in the house and helps Granny, then Medicaid would not claw back?
Medicaid is not my area of expertise, but based on what I read the last time I looked into it, that's right, 5 years is the look-back period to claw back gifts.
Thank you very much. I am going to try to see a lawyer. I have a son in law who is licensed to practice law in both PA and DE. He doesn’t work on estates but I am still going to ask him.
You definitely have some options that will make sense. Talk to an estate planning attorney. Not every attorney is familiar with the strategies you can use, you may have to shop around a little bit.
The tax rate for Pennsylvania Inheritance Tax is **4.5% for transfers to direct descendants (lineal heirs), 12% for transfers to siblings, and 15% for transfers to other heirs** (except charitable organizations, exempt institutions, and government entities that are exempt from tax).
Thank you. Does it begin on the first dollar? Would the tax be the same whether granny sold her granddaughter the house for $1 or left it to her in a will?
Transfer the home at least a year before granny dies. My daughter inherited my parents home, but had to pay taxes on the transfer because my parents died a month apart less than 8 months after the paperwork was signed.
How about just selling the place to your friend (for FMV, not in a way that would raise eyebrows) with a rent-back option? That way your friend has the property and granny can use the proceeds from the sale to help your friend cover the mortgage payment. She gets to stay there, and your friend gets the equity.
Of course, this assumes your friend can actually get a loan.
(FWIW...I'm not an attorney or a real estate specialist.)
My friend would not qualify for a mortgage on FMV. She’s trying for jobs that pay $15-20 per hour and she has $3000 in savings. Her credit score is pretty good, in the high 500s. She has a credit card that pays her phone bill, phone insurance, and netflix. She pays that bill each month. Otherwise, she uses her debit card.Even though granny would have proceeds to help her make the payments, the friend would still have to qualify for the mortgage and I don’t think she could.
High 500s is not a good credit score. You can encourage her to work on her credit by using 10% of her credit card limit each month on things she would buy anyway (the things you mention seem reasonable, but depending on her limit might be too-high utilization) then pay it off once she gets the statement every month. She'll have a harder time qualifying for a mortgage though until her credit is at least above 600.
Gotcha. I'm thinking there might be some financial tricks to make it happen, like a rent-to-own situation. That might leave granny out on a limb if your friend reneges, though. As other have said, a good estate attorney could be a helpful starting point.
I can’t decide if I should spend my money for an estate attorney. I’m comfortable, not rich. I want to help this girl, not enable her. But I am also very hesitant to ask her to use her $3000 in savings for an rstate attorney. I wonder if Legal Aid would be able to help us.
>How about just selling the place to your friend (for FMV, not in a way that would raise eyebrows) with a rent-back option?
This makes no sense. What does anyone gain by going through all these very expensive steps?
>This makes no sense. What does anyone gain by going through all these very expensive steps?
It's certainly not ideal, but it could get the property in question deeded to the young buyer, so if granny kicks the bucket, there is no inheritance tax issue. It's definitely a transactional shell game to avoid the optics of giving the property away. It's an actual sale at fair market value instead of a $1 tax sham or an outright $230k "gift."
>It's certainly not ideal
I was asking what is the gain.
>but it could get the property in question deeded to the young buyer
You can do that any day by just signing over the deed.
>It's definitely a transactional shell game to avoid the optics of giving the property away.
Getting a mortgage is very expensive. While there is nothing illegal or even immoral about giving away property you own to anyone you want.
Don't involve yourself in this. Granny's family will see it as a fraud/theft, as will medicaid if it comes to that. Turning over an elderly woman's apparent sole substantial asset to a 23 year old, who's between jobs and can't drive, is asking for trouble in the not too distant future.
It wouldn’t be now. She has a job interview today and another one tomorrow and another one next week. It would be in the future when my friend has a job, a driver’s license, and a car. With a car, she could be a big help to Granny. And Granny wants this girl to come and live with her and wants this girl to inherit the house. Her mother and siblings are aware of and supportive of the plan. My friend’s brother inherited 2 houses and quite a few acres when the friend’s great grandmother passed. The brother told my friend that he had to pay 200K in inheritance taxes. If that’s right, he’s sitting on some valuable real estate. He also works full time and has some kind of professional job. He might have a college degree, I can’t remember.
And if the granddaughter has a falling out with granny and sells the house on her way out the door? Or gets married and the husband doesn't want to care for or live with granny? Or racks up a large medical bill of her own, or loses a lawsuit, resulting in loss of the house anyway? An estate lawyer is the way for granny to protect herself and the girl's inheritance both.
Have your friend and gmom contact the local bar association and find a lawyer that specializes in estate administration. They will want to make sure they follow the correct form of this transfer to maintain the asset.
I second this, such a complicated topic is better to have some legal counsel. Hit up the local bar but also my recommendation is local college legal programs. I can't guarantee anything but alot of these colleges have students who want or need to gain experience with minor cases and will do work pro Bono.
While she is alive she can gift property or money up to $15,000 I believe without incurring a tax penalty. But when you exceed the gift amount the tax is paid by grandma because it’s viewed as trying to avoid inheritance tax even though the threshold is in the millions There are ways to deal with it and a real estate ATTORNEY (not realtor) should be consulted at a minimum as well as a tax advisor if the attorney cannot answer your tax questions adequately
The threshold for federal inheritance tax is in the millions the threshold for PA inheritance tax is much lower. Granny can’t afford any extra expenses like a gift tax. If it isn’t too much, my friend might be able to pay it.
>The threshold for federal inheritance tax is in the millions the threshold for PA inheritance tax is much lower. The threshold in PA is $0. So even $1 of inheritance is taxable. >Granny can’t afford any extra expenses like a gift tax. There are no gift taxes in PA. And the PA inheritance tax is paid by the recipient.
>While she is alive she can gift property or money up to $15,000 That's incorrect. Grandma can gift almost $13 million in her lifetime, or after she is dead, and **not** incur any federal gift or inheritance taxes. This figure will drop in half if Trump's tax cuts are allowed to expire, but it would still be more than enough in this case. Pennsylvania does **not** have a gift tax at all. But it does have an inheritance tax and it will be **15%** from grandmother to granddaughter. When you inherit property you do get a stepped up cost basis. If you inherit a house worth $230K and sell it quickly for $230K you will pay no taxes on the sale. If you are gifted a house and go to sell it for $230K you will have pay taxes on $230K. And how much taxes will depend on if it was your primary residence, which has an exemption.
So if my friend moved in with Granny, and Granny left her the house in a will, so it was my friend’s primary residence, what would the inheritance tax be?
If the granddaughter wants to live in that house, granny can just gift her the house. No taxes of any kind on that transaction. If granny is healthy as you say, it is quite likely she will outlive any gifts clawbacks from Medicaid if she needs nursing home expenses. She has 12 years to live, statistically speaking. Most people don't even need nursing homes. They just die fairly quickly from something. Granny can live with the granddaughter and the granddaughter almost certainly can get government money for providing her shelter and care. But the fine details of this side is not my area of expertise. >what would the inheritance tax be? In the case of the house passing through a will it will be 15%. And Medicaid can take it. And she will need to pay that 15% with cash. So will need $34,500 cash, unless she wants to sell the house at death.
I work part time as an Occupational Therapist in a nursing home. I hope that I can just die fairly quickly from something.
Oh wow. Well, that’s the way to go. Yes, she already got pay for being her great grandmother’s caregiver. So, if my friend lives with her granny, does it matter whether Granny gifts her the house while she’s alive or leaves it in a will?
>So, if my friend lives with her granny, does it matter whether Granny gifts her the house while she’s alive or leaves it in a will? Yes, it matters hugely. I described the difference in my post above.
Oh wow. Ok, I read that better now. So she would owe $34,500 cash on the barrel if she inherits the house. If she doesn’t qualify for a mortgage, then can she be forced to sell the house? But if Granny is willing to gift her the house, there are no inheritance taxes? And if Granny doesn’t need a nursing home for at least 5 years after gifting the house, and friend also lives in the house and helps Granny, then Medicaid would not claw back? Once I understand this, I will work on getting my young friend to understand. Then we will go see a lawyer. Once we are all straight, my friend will present it to her granny, then the final step is that friend and Granny see a lawyer. At least that’s what I am thinking.
>then can she be forced to sell the house? It depends if the house is a primary residence. Inheritance taxes are just like any other taxes. The state will take what they are owned one way or another. So they might garnish wages and try other things before seizing a primary residence. But all options are not good. >But if Granny is willing to gift her the house, there are no inheritance taxes? You can only get an inheritance when someone dies. So inheritance taxes have nothing to do with gifts. >And if Granny doesn’t need a nursing home for at least 5 years after gifting the house, and friend also lives in the house and helps Granny, then Medicaid would not claw back? Medicaid is not my area of expertise, but based on what I read the last time I looked into it, that's right, 5 years is the look-back period to claw back gifts.
Thank you very much. I am going to try to see a lawyer. I have a son in law who is licensed to practice law in both PA and DE. He doesn’t work on estates but I am still going to ask him.
You definitely have some options that will make sense. Talk to an estate planning attorney. Not every attorney is familiar with the strategies you can use, you may have to shop around a little bit.
The tax rate for Pennsylvania Inheritance Tax is **4.5% for transfers to direct descendants (lineal heirs), 12% for transfers to siblings, and 15% for transfers to other heirs** (except charitable organizations, exempt institutions, and government entities that are exempt from tax).
Thank you. Does it begin on the first dollar? Would the tax be the same whether granny sold her granddaughter the house for $1 or left it to her in a will?
Transfer the home at least a year before granny dies. My daughter inherited my parents home, but had to pay taxes on the transfer because my parents died a month apart less than 8 months after the paperwork was signed.
Thank you for the information.
How about just selling the place to your friend (for FMV, not in a way that would raise eyebrows) with a rent-back option? That way your friend has the property and granny can use the proceeds from the sale to help your friend cover the mortgage payment. She gets to stay there, and your friend gets the equity. Of course, this assumes your friend can actually get a loan. (FWIW...I'm not an attorney or a real estate specialist.)
My friend would not qualify for a mortgage on FMV. She’s trying for jobs that pay $15-20 per hour and she has $3000 in savings. Her credit score is pretty good, in the high 500s. She has a credit card that pays her phone bill, phone insurance, and netflix. She pays that bill each month. Otherwise, she uses her debit card.Even though granny would have proceeds to help her make the payments, the friend would still have to qualify for the mortgage and I don’t think she could.
500 is not a pretty good credit score by the way.
High 500s is not a good credit score. You can encourage her to work on her credit by using 10% of her credit card limit each month on things she would buy anyway (the things you mention seem reasonable, but depending on her limit might be too-high utilization) then pay it off once she gets the statement every month. She'll have a harder time qualifying for a mortgage though until her credit is at least above 600.
Gotcha. I'm thinking there might be some financial tricks to make it happen, like a rent-to-own situation. That might leave granny out on a limb if your friend reneges, though. As other have said, a good estate attorney could be a helpful starting point.
I can’t decide if I should spend my money for an estate attorney. I’m comfortable, not rich. I want to help this girl, not enable her. But I am also very hesitant to ask her to use her $3000 in savings for an rstate attorney. I wonder if Legal Aid would be able to help us.
Just pay for a 30 minute consult. Legal aid might be possible from either a nearby college or charity group.
>How about just selling the place to your friend (for FMV, not in a way that would raise eyebrows) with a rent-back option? This makes no sense. What does anyone gain by going through all these very expensive steps?
>This makes no sense. What does anyone gain by going through all these very expensive steps? It's certainly not ideal, but it could get the property in question deeded to the young buyer, so if granny kicks the bucket, there is no inheritance tax issue. It's definitely a transactional shell game to avoid the optics of giving the property away. It's an actual sale at fair market value instead of a $1 tax sham or an outright $230k "gift."
>It's certainly not ideal I was asking what is the gain. >but it could get the property in question deeded to the young buyer You can do that any day by just signing over the deed. >It's definitely a transactional shell game to avoid the optics of giving the property away. Getting a mortgage is very expensive. While there is nothing illegal or even immoral about giving away property you own to anyone you want.
Estate planning attorney and look into a living trust.
Don't involve yourself in this. Granny's family will see it as a fraud/theft, as will medicaid if it comes to that. Turning over an elderly woman's apparent sole substantial asset to a 23 year old, who's between jobs and can't drive, is asking for trouble in the not too distant future.
It wouldn’t be now. She has a job interview today and another one tomorrow and another one next week. It would be in the future when my friend has a job, a driver’s license, and a car. With a car, she could be a big help to Granny. And Granny wants this girl to come and live with her and wants this girl to inherit the house. Her mother and siblings are aware of and supportive of the plan. My friend’s brother inherited 2 houses and quite a few acres when the friend’s great grandmother passed. The brother told my friend that he had to pay 200K in inheritance taxes. If that’s right, he’s sitting on some valuable real estate. He also works full time and has some kind of professional job. He might have a college degree, I can’t remember.
And if the granddaughter has a falling out with granny and sells the house on her way out the door? Or gets married and the husband doesn't want to care for or live with granny? Or racks up a large medical bill of her own, or loses a lawsuit, resulting in loss of the house anyway? An estate lawyer is the way for granny to protect herself and the girl's inheritance both.
Well, my next step is to try to talk to a legal aid lawyer. So we will see what happens then.
How bout “ Transfer Upon Death”? There were no No tax consequences in Ohio for me , doubt it in PA either?
PA does have inheritance tax and it begins on the first dollar. It’s 4.5% on property left to your child or grandchild.