Sally of Smithtown, New York, previously transferred her house into a Medicaid Asset Protection Trust eight years ago. She accomplished this by creating the irrevocable trust and naming her son, Harold of Hauppauge, New York, the trustee. Harold as trustee, sold the house, received the proceeds, and deposited them into the trust bank account. As trustee of the trust, Harold entered into a contract to purchase a condo from Carol of Commack, NY. The closing was held at the Suffolk County National Bank’s Riverhead branch. Sally asked her attorneys, Futterman & Lanza, LLP, if she needed to be at the closing. Her attorneys told her that, although she was welcome to come, it was not necessary that she be present at the condo closing (although it would be her new primary residence). The Commack condominium was being purchased by the trust, and the trustee, her son, Harold, acted for the trust; hence, he was the only party necessary to attend the closing.
At the closing Harold had checks payable from the trust bank account to Carol (the seller). The purchase price, pursuant to the contract between the seller and the trust, was $200,000.00 and Harold had a bank check made payable to Carol. In exchange for the money, pursuant to the contract, Carol transferred title to the Commack condo. To transfer title to the condo into the trust, Carol executed the following documents:
- a new real property deed (a bargain and sale deed),
- NYS form TP-584, titled “Combined Real Estate Transfer Tax Return, Credit Line Mortgage Certificate, and Certification of Exemption from the Payment of Estimated Personal Income Tax,” and
- NYS form RP-5217, titled “Real Property Transfer Report.”
Although only Carol needed to sign the deed, Harold, as trustee, needed to countersign the TP-584 and RP-5217, to effectively take title to the Commack condo in the name of Sally’s Medicaid Asset Protection Trust. Ultimately, the title closer, from the title insurance company, recorded these forms. Harold had hired the title company to make sure that the trust was taking “clean” title and that Carol was, in fact, the record owner of the property and the proper person to deal with in the purchase of the Commack condo.
For capital gains purposes, the basis in the condominium is the cost, $200,000.00. Assuming there are no capital improvements, if the trust sells the condominium, capital gain or loss would be calculated as the difference between cost basis and sales price. If Sally had lived in the house (her primary residence) for two of the previous five years, she would be entitled to another $250,000.00 exclusion from capital gains. I say another, because she recently sold her Smithtown home in order to have the means to purchase her new Commack condo. Two notes:
- Although the trust has title to the condo (owns it), the real property taxes are based on Sally’s age and income – because the trust is a grantor-type trust for tax purposes.
- Although the trust has title to the condo, if Sally uses the home as her primary residence she may still be entitled to the $250,000.00 exclusion, again because the trust is a grantor-type trust.
- The $250,000.00 capital gains exclusion requires the seller to use the residence as a primary residence in two of the last five years – the five year term is coincidental and has nothing to do with the Medicaid five year look back period.
To be continued ….
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, New York City, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.