Real Estate Community Forum

My mother has a beautiful home. I am living with her along with my 3 year old daughter. I pay her taxes and take care of her house, such as cutting the lawn, painting the rooms, doing her landscaping, and maintenance. Someone told me that once she dies, I will be responsible to pay an inheritance tax on anything that I receive from her estate. Is this correct? If so, then what can I do to avoid this tax?

When someone dies, their estate needs to be settled. This means that according to her will, property will be distributed to those listed in her will. These people will be subject to an estate tax since they are given either property or money. However, if you mother puts your name on the house prior to her death, you will not be taxed. Some people will actually give the house to a son or daughter for a dollar. The purpose is to avoid any taxes. This is something you may want to consider, but if there are other siblings involved, this could be a problem. You may want to consult an attorney to avoid any problems.

Yes, I have heard of parents who transfer ownership of their house to other family members for a dollar to avoid estate tax, but what about just putting your name on the house along with your parents name. Can that be done without having to worrying about being taxed if they die? I have a feeling that since their name is also on the deed of the house, they are considered part owners and thus you would be subject to estate tax. Does this sound correct?

I have found that some older parents will transferring ownership, usually in the form of a gift, to their children in order to protect their home from potential Medicaid liens that can come about if the parent becomes very sick. However, keep in mind these transfers are subject to a three-year look-back period. What this means is, if the transfer of ownership to the house takes place less than three years before Medicaid benefits are acquired, there will be a waiting period before benefits can begin. This is something to think about also, if you have aging parents.

Therefore, deeding a property to children accomplishes a few things. It protects the property from a future Medicaid lien and it starts the three-year Medicaid look back period ticking.