| Medicaid trusts and capital gains….read on:
READER QUESTION:
In a situation where the house was put in an irrevocable Medicaid trust right after the death of the first spouse, how are the capital gains handled when the surviving spouse passes?
MY RESPONSE:
Since the surviving spouse created the trust and retained the right to live in the house for the rest of his life (among other benefits), the house gets a full step-up in tax basis at the death of the surviving spouse. As such, the children (trust beneficiaries) will pay no capital gains when they sell it soon after the surviving spouse’s death.
READER QUESTION:
What is the capital gains tax situation if the trust sells the house and buys another house for the surviving spouse?
MY RESPONSE:
The answer is the same whether the house is in the trust or not. You can still use the surviving spouse’s $250,000 capital gain exclusion. Since there are many variables here I can not give a complete answer but know that the $250,000 exclusion remains. The trust buying another house, while permitted, does not change the result in any way. |
