Transferring ownership of real estate from grandparents to grandchildren is a common practice that allows families to pass down property between generations. There are a few key considerations when grandma is gifting her house:
Determining If The Gift Is Truly a Gift
Before moving forward, it’s important to confirm that your grandma genuinely intends this transaction to be a gift, not a sale.
- If grandma expects you to pay her anything – even just a token amount – that would make this more of a sale than a gift. Gifts are transfers made out of “detached and disinterested generosity” with no strings attached.
- Grandma should not expect to maintain any control or stake in the home after she gifts it. This transfer needs to be absolute and unconditional.
- You’ll want written documentation that this is a gift with no payment expected. A simple gift letter signed by grandma clearly stating her intent could suffice.
Understanding Gift Tax Rules and Exclusions
There is a federal gift tax that applies when giving gifts above a certain value. However, most grandparents gifting homes can avoid gift taxes using exclusions.
- The annual gift tax exclusion amount for 2023 is $17,000. Grandma can gift up to this amount each year per recipient without needing to report it or pay gift taxes.
- There is also a $12.92 million lifetime gift and estate tax exemption per individual in 2023. This higher threshold can apply when gifting a home.
- To qualify for the $12.92 million exemption, grandma must properly file IRS Form 709. This is an important step that should not be skipped.
- Married couples can combine their exemptions to gift $25.84 million tax-free. Proper filing remains crucial.
So with proper filing, most grandparents can gift a home entirely tax-free. But exemptions must be reported correctly.
Transferring Ownership of the Home
To fully gift the home, ownership must legally transfer from grandma to you. The process varies by state, but may require:
- A new deed listing you as sole owner. This deed must be recorded with the county.
- Transferring the property tax bill and home insurance policies to your name.
- Updating utility accounts and any other services so they bill you going forward.
- If grandma has an outstanding mortgage, she’ll need to pay that off first or you’ll have to formally assume the loan.
An real estate attorney can help navigate the ownership transfer process smoothly including filing the right paperwork.
Being Aware of Medicaid Look-Back Periods
If grandma ever needs Medicaid to pay for long-term care costs, gifts made within 5 years can affect her eligibility. Medicaid has a 5-year “look-back period” where gifts above minimal amounts can lead to a penalty period of Medicaid ineligibility.
So if grandma thinks she may need Medicaid soon, gifting her home could jeopardize that. Consulting an elder law attorney is wise to understand Medicaid rules before proceeding.
Considering Alternatives Like Putting You on Title
Rather than gifting the home fully, another option is for grandma to add you to the property title. This retains her ownership while allowing you inheritance rights outside of probate. Being added to title also gives you immediate access if needed, say for urgent repairs.
But shared title also means the home may be countable as an asset if you apply for Medicaid before grandma passes away. There are pros and cons to weigh.
Ensuring Grandma Has Her Own Housing Plan
Before signing over her home, grandma should think through where she will live next. Moving in with family or to a senior living facility are common options.
If finances allow, consider gifting a small portion of sale proceeds back to grandma to help fund her housing costs and living expenses in retirement. An elder law attorney can help structure this.
With proper planning, caring grandparents can successfully gift their home to simplify inheritance matters. But families should seek legal counsel to ensure the process follows all state and federal guidelines.