#Irc 2036 full#
#Irc 2036 code#
#Irc 2036 plus#

The most significant problem resulting from utilization of a deed with the reservation of a life estate occurs if the premises are sold during the lifetime of the transferor. A вЂњlife estateвЂќ, pursuant to IRC вЂ 2036(a), is the possession or enjoyment of, or a right to the income from the property or the right either alone or in conjunction with another to designate the persons who shall posses or enjoy the property or income thereof. This, of course, presumes the existence of an estate tax upon the death of the transferor. This occurs because the residence is includible in the gross taxable estate of the transferor upon his or her demise.

#Irc 2036 full#

Pursuant to вЂ 2036(a) of the IRC, the transfer of a residence with a retained life estate permits the transferee of the residence to receive a full step up in his or her cost basis in the premises upon the death of the transferor, to its fair market value on the transferorвЂ™s date of death.

Thus, a transfer of real property by deed with a retained life estate will also require that the transferor not apply for Medicaid within the look back period to avoid a significantly onerous period of ineligibility for nursing home Medicaid. If the transfer was made within an existing Medicaid look back period (60 months), the period of ineligibility would not commence until the applicant was receiving institutional care in a nursing home and was otherwise eligible for Medicaid, but for the transfer made. (b) Transfer of the Residence with the Reservation of a Life Estate As can be seen from the above stated the consequences can be financially significant. It will also be necessary to obtain a fair market value appraisal of the premises gifted for purposes of calculating the federal gift tax credit utilized by the transfer. Any VeteranвЂ™s, STAR and Senior CitizenвЂ™s Exemptions would also be lost with an outright transfer.

However, if after the transfer is made the transferee owns and resides in the premises for two out of the five years, he or she will be able to use said principal residence exclusion. Cost basis must be strongly considered before making an outright transfer of the residence. For some clients the combined state and federal income tax with the 3.8% Medicare surtax can exceed any applicable estate tax rates. With the federal capital gains tax rate with the Medicare surtax being approximately 24%, the income tax impact could be significant.

#Irc 2036 code#

If Medicaid is needed within the 60 month look back period, the period of ineligibility on the transfer would not commence until the applicant was receiving institutional care (in a nursing home), had applied for Medicaid and would have been approved but for the transfer made.ДЄdditionally, from a tax perspective the use of an outright transfer of the residence results in the transferor losing the Internal Revenue Code (вЂњIRCвЂќ)вЂ™121(a) principal residence exclusion for capital gains (income tax) purposes of $250,000 (single person) or $500,000 (married couple). Thus, disqualifying the transferor and his or her spouse for nursing home Medicaid (not Medicaid homecare) for 60 months. For Medicaid eligibility purposes, the outright transfer of the residence would be subject to a 60 month look back period (subject to exempt transfer rules). Thus, a gift tax return will need to be filed and utilization of oneвЂ™s lifetime gift and estate tax credit ($5.34 million per person for 2014) may need to be used.

#Irc 2036 plus#

Perhaps the least desirable option available, as the transferee of the property will receive the transferorвЂ™s original cost basis in the property (original purchase price plus amount of any capital improvements made), and the outright transfer is a completed gift subject to gift taxes. (a) Outright Transfer of the Residence Without the Reservation of a Life Estate.

The following is a review of the types of transfers of a residence that can be made and their consequences: A complete and thorough review of all available options should be made prior to making the transfer. The decision to transfer oneвЂ™s residence raises a number of significant and complex issues and concerns for both the attorney and client, for example every potential transfer raises estate and gift tax, capital gains tax as well as Medicaid eligibility issues for the client, particularly a senior. Factors To Consider When transferring A Residence For Elder Law And Estate Planning Purposes: A Primer