[AL] In Alabama, can I sell my house now and give the proceeds to two of my daughters despite having a will, or alternatively sell the house, buy a new one, and add one daughter as a co-owner?

Lexi, Chatbot

I understand that you're concerned about the implications of selling your house and how it affects your will. Have you already discussed your plans with your daughters?

Lexi, Chatbot

Are there any specific terms in your will regarding the distribution of your assets that we should consider?

Lexi, Chatbot

Is there anything else the Real Estate Lawyer should know before I connect you? Rest assured they’ll be able to help with your estate planning.

TJ, Esq.

Hello! My name is TJ and I’m an attorney. Thanks so much for the opportunity to assist you! I’ve gone over the details you shared and I’ll post my initial response shortly. I’ll also post a few quick questions. They’ll help me better understand your situation so I can give you a more complete and tailored answer.

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TJ, Esq.

Thanks for getting back to me!

Your understanding about savings accounts and probate is generally correct, but with a crucial caveat: funds in a savings account will only avoid probate if they are specifically designated as “Payable on Death” (POD) or “Transfer on Death” (TOD) to a named beneficiary. If there's no POD or TOD designation, then the savings account, like other assets held solely in your name, would typically go through the probate process outlined in your will. So, while putting the proceeds from selling your gold and silver coins into savings can be a good move, you'll need to make sure you set up the account correctly to bypass probate.

Regarding the house, giving the proceeds to your daughters or adding one as a co-owner now could indeed trigger gift tax issues. The IRS has an annual gift tax exclusion (which is currently $19,000 per recipient per year). If you give more than that amount to one person in a calendar year, you have to file a gift tax return (Form 709). While you might not owe actual gift tax immediately, because there's also a lifetime gift tax exclusion (a much larger amount, currently $13.61 million in 2024, but this is subject to change), these gifts would eat into that lifetime exclusion. The donor — you — is generally responsible for paying any gift tax, not the recipient.

If you sell your house and put one daughter on the deed as a co-owner, it's considered a gift of half the property's value (or whatever percentage you transfer). This means the same gift tax rules would apply to that portion of the property's value. Also, for your daughter, when she eventually sells the house, her “basis” (the value for tax purposes) will be what you paid for your portion of the house, not the current market value. This means she could face a significant capital gains tax if the house has appreciated a lot since you bought it. If she inherited the house through your will, she'd get a “stepped-up basis” to the value at your death, which would greatly reduce or eliminate her capital gains tax if she sells it soon after inheriting it.

The Medicaid aspect is also really important here, even if neither daughter is on Medicaid now. Alabama has a “look-back” period of 60 months (five years) for Medicaid long-term care eligibility. If you give away assets for less than fair market value during this look-back period and then apply for Medicaid to cover nursing home care, you could be penalized with a period of ineligibility. This means Medicaid wouldn't pay for your care for a certain number of months. Even though one daughter is on Medicare, that's different from Medicaid. Medicare is a health insurance program, while Medicaid is a needs-based program that can help with long-term care costs if you meet strict financial criteria. Gifting assets could definitely complicate future Medicaid eligibility for you.

To proceed, you should consider a few options:

• One option is to proceed with the gifting, but understand the tax and potential Medicaid implications. This may involve filing gift tax returns.
• Another option is to keep the assets in your name and ensure your will accurately reflects your wishes for distribution after your death.
• For your savings accounts, you can explore adding POD designations directly with your bank, which bypasses probate for those specific accounts.

This strategy could help ensure your assets are distributed as you intend, and in a way that minimizes potential tax burdens or Medicaid eligibility issues for your daughters and yourself.

Did I completely answer your question, and do you need any clarification on this information, or do you have any follow-up questions?

Thanks again for letting me assist you!

TJ, Esq.

Thanks for those questions.

Moving to Arkansas and selling your current house and coins, then buying a new house there for approximately half the proceeds, and having your executor daughter handle probate in Arkansas to give the other half to her sister, does make sense in terms of a general plan. However, keep in mind that the half of the proceeds that isn't used for the new house, if it's still in your name without a POD designation, will still go through probate. Also, moving states means the probate laws of Arkansas will apply, which might have different nuances than what you're currently familiar with.

Gifting $19,000 a year to your daughters until they each receive half the proceeds from the sale of your house is a way to use the annual gift tax exclusion and avoid gift tax issues. This strategy means you wouldn't have to file a gift tax return for those specific gifts, assuming they don't exceed the annual exclusion amount per recipient. The downside is that it could take a long time to transfer a significant amount of money this way, and the funds would be out of your control once gifted.

Yes, if you retain half of the coins, that half would generally go through probate, just like any other asset held solely in your name without a beneficiary designation. If you sell the other half and put the money into your savings account, that money would also go through probate unless your savings account has that POD designation.

The POD designation is designed specifically to bypass probate. When an account has a POD designation, it means the funds in that account automatically transfer to the named beneficiary upon your death without the need for a court process. Your will dictates how assets that do go through probate are distributed. If your will states that the proceeds from your house sale are to be divided between your daughters after probate, and you also have a POD savings account, those two things operate independently. The POD account funds go directly to the beneficiary, and the assets subject to your will go through probate. It doesn't mean the POD account is “part of your will” in the sense that it's controlled by the probate process. It's a non-probate asset.

Do I need to clarify anything else for you, or do you have any other questions?

TJ, Esq.

That's a good question. For physical items like coins, you generally can't just “specify a beneficiary” in the same way you would for a bank account with a POD designation. A POD designation is something your financial institution sets up for that specific account.

For physical assets like gold and silver coins, if they're not held in a specific type of account that allows beneficiary designations (like some precious metals IRAs, for example), they usually have to go through probate. Your will is the document that tells the probate court who should get those physical coins.

However, there are ways to try and keep physical assets out of probate. One common way is to set up a living trust. You'd transfer ownership of your coins (and other assets you want to avoid probate with) into the trust. Then, the trust document would name a trustee (who could be you initially) and beneficiaries who would receive the coins after your death without court involvement.

Another option, though less common for something like a coin collection unless it's extremely valuable and you're comfortable with it, is joint ownership with rights of survivorship. If you were to own the coins jointly with one of your daughters, for example, upon your death, the coins would automatically pass to her as the surviving owner, bypassing probate. However, this means she'd have full ownership and control of them while you're alive, which might not be what you want.

So, while simply “specifying a beneficiary” on the coins themselves isn't typically possible for physical items, you do have options like a living trust or potentially joint ownership if you want to avoid probate for them.

Did I completely answer your question, and do you need any clarification, or do you have any follow-up questions?

TJ, Esq.