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Trusts & Estates Law/Irrevocable trust & taxes


QUESTION: I would like to understand the tax consequenses of having my mom put all of her assets into an Irrevocable Trust. The main reason would be planning for Medi-cal enrollment in the future as well as asset preservation.
Currently she owns two homes. One is a condo (bought in 2007) she lives in and will continue to live in. This home I have no questions about putting into an irrevocable trust and is not an issue.
The other is a home she has owned since 1967 and has been renting out for four years. She would like to sell the rental house in the near future and my sisters and I are not sure which way is the most advantageous tax wise. (She does not qualify for the capital gain exemption because it is not been her residence for 2 of the past 5 years. I think she gets a step up in basis based on my fatherís death in 2007)

1. She could not put it in the IT and then split the proceeds 3 ways after it sells and gift that money to us adult children.

2. She could not put the house in the IT and when it sells put the proceeds into the IT then split it 3 ways and gift it to us out of the IT.

3. She could not put the house in the IT and when it sells put the proceeds into the IT to remain there until she dies then distribute it.

4. She could put the house in the IT and then do any of the above.

When an IT is funded, are the assets being put into the trust by the creator of the trust considered to be gift to the trust and subject to gift tax?

Does an IT have a credit rating?

Thank you for any help. Wilma

ANSWER: Hi Wilma - all good questions.  The main question though is the look-back period  for Medical.  I'm in Texas and not a CPA or an attorney.  So this is just my understand.  

You must ask a qualified local professional for the look-back rules and penalties associated with irrevocable gifts.  It may be that this simply isn't practical. In short, if she winds up needing medical within a certain period after the transfer they will treat it as is it never happened and you wasted your money.  

#4 is correct ( assuming the trust makes sense).  She should have a stepped basis on the house.  You can apply for a receive credit for a trust but it takes a long time - like a child turning 18 and getting their first credit card of loan.  

This is a gift but she has a $1mil lifetime exemption and in any event wouldn't owe and estate taxes until the total is over $5 mil.

Putting her residence in an IT may no be a good idea.  The reason is she still maintains a life interest by virtue of her right to live there.  Not sure how that work for asset protection or Medical.

In summary - this is very tricky stuff.  Don't go just on what someone says on the internet.  He age, current health and the rules in CA will guide you to the right decision.  If you need more help, email me back and we will do a short conference call.  All of this assumes that your siblings are on board.


David Disraeli

---------- FOLLOW-UP ----------

QUESTION: If mom goes ahead and sells her long owned rental house and wants to divide the proceeds 3 ways, it sounds like for gift tax purposes it doesn't matter if she does it now while alive or after she passes?

You say there are better options than Irrevocable trusts. What are those options.

Thank you

You are right about the gift taxes.  It won't matter.  I'm not sure if there are better options or not.  It depends like I said California's medicaid program and the look-back provision.  Once you know that I can give you better advice.  Do some research on CA's Medicaid penalties for gifts made x mos before qualifying.  Let me know what you find.  


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David Disraeli


I can answer general questions about estate planning and trusts. I can also answer questions about estate tax reduction and advanced charitable giving, family partnerships and asset protection. I may have already answered your question here: or here


I have worked for 24 years with clients and their attorneys to formulate estate plans to meet client goals. I have found many mistakes made by client attorneys and were able to have them corrected. I focus on making sure that beneficiaries are protected from current or future spouses and lawsuits so the wealth stays in the family. I have also published a book on Aging Parents which can be found on Amazon

President and founder of The Personal CFO Inc.


Certified Financial Planner 1994

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