I have some questions about a strange real estate deal that I have just learned about. My late father and his two siblings purchased their parents home in 2005 for $10 while both parents were still alive. Each child owns 1/3 and the parent have survivorship rights to live in the house as long as they are alive. The deed transfer was executed in 2015 with a sale date still listed as 2005. The assessed value at the time was around $35,000 but I have no way to know what the actual market value of the house was. It is now valued by zillow at $450,000.
My father passed away this year and his siblings are both still alive and healthy. His 1/3 of the house now belongs to my mother. My grandfather passed away in 2013 and my grandmother lives in the house still and is 82 and very unhealthy. I am having a hard time seeing what benefit there was to the $10 purchase of the house. As far as I can tell, all they did was massively increase the tax burden they will all face.
Does anyone have any insight as to why this decision may have been made?
Father and his siblings bought my grandmas house for $10. Stupid or smart? (New York State)
byu/rjnono inRealEstate
Posted by rjnono
18 Comments
It would have been their house anyway so why not?
But probably done to protect grandparents from Medicare limits if they needed them
This sounds like classic estate planning to avoid probate and maybe dodge some taxes down the line. The $10 sale price is probably just the minimum legal consideration needed to make the transfer valid – the real “payment” was probably them agreeing to let the grandparents live there rent-free forever
The stepped-up basis thing you’re worried about is real though, they basically locked in a much lower cost basis for capital gains purposes if they ever sell
Where did you get the idea that the sale price was $10?
Modern deeds often have some antiquated legal verbiage about a property selling for $10 “and other valuable consideration” which is usually the actual sales price. Unless the local laws require an affidavit be filed with details of the sale you may not be able to find out the actual sales price.
Selling a house for $10 may create a tax bill for the grantee, the IRS would consider it a ‘gift’ and only a small amount of that is not taxable. Inheritances are treated differently than gifts though, for tax purposes.
What is it you want to do? Why does this matter?
Manipulation
$10 turns into a minimum of 300k after taxes
Is how I see it. If your grandparents had ended up in long-term care, the house would have been lost.
Not the smartest but if they never sell it won’t really matter. Their heirs will get a step up basis when they pass
r/EstatePlanning
They did it in an attempt to avoid long term care garnishments and any probate issues, but the siblings who where part of the purchase will get a massive tax bill if they need to sell before they pass.
This almost never happens because it almost certainly triggers tax and fraud liabilities
A so-called “$10 sale” of a parents’ house to a child isn’t really a sale in the eyes of the law. When a home worth hundreds of thousands of dollars is transferred for a token amount, the IRS treats almost the entire value as a **gift**, not a purchase. That means the parents are required to file a gift-tax return, and the value of the home is applied against their lifetime gift and estate tax exemption. While this doesn’t usually trigger immediate taxes for most families, it quietly consumes a large portion of an exemption that may be needed later, especially as those exemption limits are scheduled to decrease in the future.
One of the biggest hidden problems is the loss of the **step-up in basis**, which is often where families unknowingly lose the most money. If a child inherits a home after a parent’s death, the home’s tax basis resets to its fair market value at that time, dramatically reducing or eliminating capital gains taxes if the home is later sold. When the home is transferred for $10, however, the child inherits the parents’ original purchase price as their basis. If the house has appreciated significantly, this can result in a massive capital gains tax bill down the road that could have been avoided entirely by inheriting the property instead.
If there is still a mortgage on the property, the situation becomes even more problematic. Most mortgages include a due-on-sale clause, which allows the lender to demand full repayment when ownership changes. A $10 transfer does not bypass this, and the lender can call the loan immediately. Attempting to finance or insure the property based on an artificially low purchase price can also create serious issues with lenders and insurers, and in extreme cases can cross into fraud territory.
Property taxes are another common shock. In many states, transferring a home triggers a reassessment based on fair market value, regardless of the stated sale price. This can cause property taxes to jump dramatically overnight. Even in states that offer parent-child exemptions, those protections often require specific filings and disclosures, and a nominal sale price does not automatically preserve the existing tax assessment.
There are also significant risks related to Medicaid eligibility. Medicaid has a five-year look-back period, and transferring a valuable asset for $10 is viewed as an attempt to shelter assets. If a parent later requires long-term care, this transfer can result in penalties or disqualification, forcing the family to pay out of pocket for care during the penalty period. This is one of the most common and costly unintended consequences of these arrangements.
Once the transfer happens, ownership and liability also change in ways many families don’t fully appreciate. The child becomes the legal owner, while the parents effectively become tenants. Insurance policies must be updated, liability shifts to the child, and any injury or accident on the property can expose the new owner to lawsuits. These details are often overlooked until something goes wrong.
Finally, transactions like this can create serious problems with siblings or other heirs. Even if everyone is on good terms initially, a $10 sale can later be challenged as unfair, coerced, or fraudulent, particularly if a parent’s health or mental capacity declines. In probate or estate disputes, these transfers tend to attract scrutiny and can unravel family relationships.
The reason these arrangements still circulate online is largely because they used to work decades ago. Tax laws and estate rules have since closed those loopholes, but the myths persist. In reality, a $10 sale is rarely clever and is almost always worse than simply inheriting the property or using a properly structured estate-planning tool. In most cases, boring, conventional solutions like trusts, transfer-on-death deeds, or well-planned inheritance produce far better outcomes with far fewer risks.
They just did it to avoid probate. Now, when grandparents die, no one has to go to court to determine the ownership of the house. It is already titled in the name of their kids (your late dad (your mom will have to deal with that part) and his siblings).
You are correct. If they had not done this, if they had inherited the house from the parents, they would have paid no capital gains taxes on it. Now, when they do go to sell it, they will owe capital gains taxes on it.
They may have done this so as to avoid the parents being swindled out of the house, or to avoid one sibling swindling the others out of their share of the inheritance, or to avoid the house going to pay for a Medicaid nursing home. Anyways, now, it’s going to be viewed as an investment property, because none of them live in it, none of them can claim the tax exclusion on selling a primary residence. It is going to be a huge mess – with them having paid only ten dollars for it, “and other consideration”, they may effectively owe capital gains tax on the entire sales price of the house, when they go to sell it. And since there are three of them owning it together, they cannot really work anything out, to gift it to one of the grandkids, to avoid the cap gains tax. Plus, if they have depreciated it over the years, as if it were a rental property, they would owe depreciation recapture tax on it, too.
In my opinion, the way out of this after grandma is gone is to 1031 exchange it into a rental house in a vacation area, like a lake house or a ski house or a beach house, for all three families to be able to use. It would have to be rented at least some of the time, for a year or two, to confirm that this was a true 1031 exchange, but after that, you could stop renting it out at all. This would kick the can down to the next generation. Plus I imagine that it would have made the grandparents very, very happy to think that their home would have been converted into a gathering place for family, for generations to come.
I agree with the reasons given to avoid Medicaid issues if your grandmother has to go into assisted living for whatever reason. We faced this possible problem with my mother years ago. Thankfully it didn’t become a problem, but if your grandmother had to go on Medicaid (US), then they could take the house as “payment” if no one else was living in it, as in if your grandfather were still alive and living there. Then, the house would be his until he passed.
By essentially giving the house to their children (your father and his siblings), and it now being 2025 with the five-year look back having passed, as I understand it, Medicaid can’t go after the house as your grandmother’s asset.
Disclaimer is my info is from ~2005 and rules could have changed in the interim.
The sale was 20 years ago. Hopefully, they transferred ownership at that time.
I grew up in Western NY state (an only child). My father had a “living will” with my name on his deed ONLY if he should he pass before it was ever sold. I had moved to Michigan, as an adult and, for the last 2 years of his life (he was not well) I moved him here with me. I commuted to get his house ready to sell and did, three months before he died (so he was STILL the owner). Shortly after, I got a letter from NY state saying I owed a couple thousand dollars to them because the house sold and I did not buy another property in NY state. I was stunned. I was only on the paper work in the event that he passed before sale, for probate purposes. The house was sold while he was STILL living. I sent them a letter stating as such and was not responsible for any payment. I was so glad to be rid of NY state. They will try to suck money out of people any way they can. Too expensive, taxes too high. I thought, for just a minute, about moving back because it was a cute house and I loved growing up there but the taxes, then (1997) were twice what I pay NOW, on my house in Michigan. I still visit frequently but would never live there.
The 10 dollars was just to dodge excise taxes most likely? Think of it as a quit claim that will be treated as a gift by the IRS (not sure about your state). If they were trying to be cute it won’t matter.
It’s a life estate tenancy for the grandparents that assures they have a place to live, while protecting their asset (home) from being taken by medicare if they should have to go into assisted living.
If you have ever dealt with a parent that had to go too assisted long term care you would know why this happened. Medicare an medicaid will take your property as part of the spend down process. It also alleviated the need of probate after a death of a parent. I hope all the siblings get along an dont have a fight over who gets what when gramma goes to the happy hunting ground
Bad move. Should have waiting until she passed resulting in NO capital gains taxes when inherited. Now they will owe their share of the $450k value as a capital gains tax.