I know that gifts given to parents by their children within one year of their death are not eligible for cost-basis step up upon inheritance by those same children. I understand that this is to close a loophole which would allow children to give their highly appreciated assets to their terminally ill parents and avoid capital gains taxes on assets which they will very soon inherit once again.

My question is, if you anticipate your parent will survive longer than one year from the time you gift your assets to them, is it legal to do this?

  • I'm voting to close this question as off-topic because asker is clearly only interested in the legal aspect of the question not it's actual financial impacts. This should be on the law stack. – quid Nov 30 '16 at 22:29
  • I disagree, the financial impacts on the parents are not what he is asking about, but it still affects his own finances. – NL - Apologize to Monica Nov 30 '16 at 22:47
  • @quid I'm asking if this is a legitimate tax-reduction strategy. Aren't there many such questions on this site? – Daniel Nov 30 '16 at 22:50
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    @quid You're making the assumption that the IRS does some kind of subjective analysis of whether a "gift" is really a gift. Whether or not they do that is really the crux of the question. Just because it's not a "gift" in the colloquial sense of the word doesn't necessarily mean it isn't a gift in the legal sense. You're framing the question as "Is this lie bad enough to constitute fraud?" The question is intended to be read as "Is this a lie at all?" – Daniel Dec 1 '16 at 0:16
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    The answer as it was originally state just commented on the fact that the parents would have to spend it down before being eligible for Medicaid. That's fine and a perfectly legitimate and helpful bit of information to include in an answer. I'm glad to know it and it's clearly directly related to my question. But it didn't address the question as asked. Now it addresses the question but doesn't provide any sources for the assertions included. – Daniel Dec 1 '16 at 0:23

When you gift them the property it becomes their property. Which means if they become ill they will have to use those assets before they are eligible for Medicaid.

You can gift anything you want. If the IRS detects that you did it to avoid taxes, they will not allow the tax advantage.

If you gift it with conditions: they can't sell it, or donate it, or give it to somebody else in their will; then the transaction is a sham.

If you give it and then 5 years later your parents have to go into a long term care center, and they start to run out of money, the government will require them to be broke before they can have their care paid by Medicare. Telling the government that you are holding it for their child will not prevent them from having to sell it.

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  • So you're saying the answer is "yes, it is legal"? This statement doesn't differentiate between gifts given within a year of death and gifts given more than a year before death so it doesn't really prove anything. – Daniel Nov 30 '16 at 18:27
  • He's saying, legal or not it might change your parents' finances in ways that you're not appreciating that may necessitate the spend down while they're alive of the assets you transferred. Additionally, after their passing, your assets may get caught up in their estate also possibly causing a spend down that you're not considering. – quid Nov 30 '16 at 19:06
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    @quid So it doesn't answer the question. – Daniel Nov 30 '16 at 21:58
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    Could you elaborate more on the second paragraph? That's the detail I'm interested in learning about. – Daniel Nov 30 '16 at 23:48
  • see this answer: money.stackexchange.com/a/71693/5414 – mhoran_psprep Dec 1 '16 at 13:36

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