DAD'S HOUSE: TRUST VS. GIFT

First published in Newsday Ask the Expert column on September 13, 2008

 

The Problem: My 63-year-old father is putting his house into an irrevocable trust and naming me and my two siblings as the beneficiaries. If he decides to move out of his house, will we be able to sell it while dad is still alive? Would it be better if my father gifted us the house?

The Expert: Linda M. Toga, estate planning and elder law attorney, East Setauket.

The Rules: Assuming your father is creating the trust for Medicaid purposes, he must give up all control over the house. It will not be considered an available asset for Medicaid purposes as long as your father doesn't control it and it has been in trust at least five years before your father applies for benefits. Only the trustee has the authority to sell a house placed in a trust.   

How It Works: If your father retains a "life estate," giving him the right to live in the house until his death, the value of that life estate will not be an available asset for Medicaid purposes. Whether or not he retains a life estate, you and your siblings will be considered "remaindermen" and the house will pass to you upon your father's death.

If your father retains a life estate, the trustee will need your father's consent in order to sell the house during his lifetime. If he does not, the trustee can sell the house any time. Whenever the house is sold, the proceeds will go into the trust and eventually be distributed to the remaindermen.  

The Results: There are advantages to you and your siblings to having the house in trust rather than being gifted to you. If the house is put in trust and passes to you and your siblings upon your father’s death, you will likely avoid significant capital gains taxes on its sale. While your father will incur some costs in connection with putting the house into a trust, he could avoid estate taxes by taking it out of his estate and would be more likely to be Medicaid eligible.

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