24 Mar Will this strategy allow us to get the full Senior Freeze?

Q. My mother is in her early 70s, retired and receiving Social Security of $30,000 a year. I am in my 40s with income of $110,000 a year. We own a fully paid off house together, with taxes of around $13,000 a year. I would like to file a quit claim deed and make her the full owner in order to maximize the Senior Freeze benefit. She would update her will, leaving everything to me, if she passes before me. I have other deductions and will not miss claiming the money from the taxes. Can I still use the quit claim deed, if I sell it to her for $1, so it does not seem like a gift?
— Trying to help

A. Ah yes, property taxes.

We’re glad to see you’re looking to maximize the household’s benefits.

In order to qualify for the 2021 Senior Freeze, among other requirements, a homeowner must be 65 or older or receiving Social Security disability benefits, have owned and lived in the home as their primary home since Dec. 31, 2017 or earlier and have been a New Jersey resident since 2010, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

You also must have income below the 2020 and 2021 limits of $92,969 and $94,178 respectively, she said.

If you own only half the home, you can only qualify for the Senior Freeze on half the home, she said.

Romania said selling a home for less than fair market value is considered a part sale and part gift.

“In your case, selling the home for $1 is the equivalent of a gift,” she said. “Since New Jersey does not tax gifts, and since the federal exemption for transfers during life and at death is currently $12.060 million a gift from you to your mother should not be an issue for purposes of the estate and gift tax.”

However, she said, a gift tax return would be required as the gift exceeds the $16,000 annual exclusion allowed for gifts to an individual.

Transfers for consideration of less than $100 are also exempt from the realty transfer fee, Romania said.

:The use of a quit claim deed versus a bargain and sale deed with covenants against the grantor’s acts is not an issue in making the transfer, although it is not clear why you would not utilize the latter form of deed if you received ownership of the property by a warranty deed,” Romania said.

The more important issue here is potentially disqualifying your mother for Medicaid merely in order to benefit more fully for the Senior Freeze, she said.

“If you gift your mother the house, and she later requires an institutionalized level of care, the house may be considered a countable resource unless you are able to qualify under the child caregiver exemption,” she said. “Provided you meet the exemption, your mother will be able to transfer the home back to you and it will not be considered a countable resource.”

Otherwise, transfers within five years of applying for Medicaid could result in a penalty period, Romania said.

“In order to meet the child caregiver exemption, you must provide a level of care that delays the parent’s need for nursing home care for two years,” she said. “Such care includes `activities of daily living’ such as bathing, dressing, meal preparation and toileting.”

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This story was originally published on March 24, 2022.

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