| A question about the sale of a house during life…read on:
READER QUESTIONS:
My house is in an irrevocable Medicaid trust with the five-year look-back satisfied. If I were to sell my house during my lifetime, for whatever reason, does the step-up in tax basis still apply at the time of sale of the house? Do the proceeds of the sale of the house stay in the trust and go to the beneficiary at the time of death?
MY RESPONSE:
If you wish to sell your house during your lifetime, you can give your consent for the sale to the trustee of your trust. The trustee will sell the house and the proceeds from the sale will remain in the trust but can be distributed to your beneficiaries either during your life or at your death.
There is no step-up in tax basis at this time because you only get that upon your death (whether you own the house or the Medicaid trust owns the house). However, the way we draft these trusts, you will still enjoy your $250,000 capital gains exclusion ($500,000 for a husband and wife) which can be applied against any capital gains tax otherwise due.
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