Legal Question in Wills and Trusts in Minnesota

Re: Parents passing house to children!

Making a gift of the house to the children can be a way to avoid probate; and if it is done at least 36 months before care is needed in a long term care facility (nursing home), it can save the house from a lien for medicaid benefits.

HOWEVER, a direct gift can have capital gains consequences. After receiving the gift, the children have the capital gains basis which the parents had - and upon sale of the house, the taxes could be tremendous. If the children waited for the parents to die and inherit the house, their basis for capital gains is value on date of death - and a big capital gain is avoided.

So what to do? Maybe nothing would be just as good as anything. Here are some possibilites:

Do a deed which transfers the house to the children, but retain a life estate for the parents. This preserves the step up in the basis for the capital gain, but it avoids probate and could at least interfere with a medicaid lien.

OR, do a contract for deed. Sell the house to the children. Have an annual payment which is equal to or below the max that can be given without filing a gift tax return. Every year when the payment becomes due, the parent writes a letter to the children saying - I forgive the payment this year, this is my gift to you. This can have the result of avoiding gift tax return, avoiding probate, avoiding some of the capital gain and avoiding the medicaid lein - or not depending on many variables (which is why I said doing nothing might not be such a bad option).

For Pete's sake, go see a lawyer. There's no one way to do this. There's choices. Circumstances. Consequences. Opportunities. Whatever the lawyer charges for the consult and the work, pay him or her gladly. It's worth it.